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What does the fees ban mean for renters?

  1. 18 May 2018
  2. By Andi Michael

With the news that a ban on estate agent fees is coming into play next year, will renters benefit or are there other issues to take into account?

The ban on letting fees charged to tenants – first announced in the 2016 Autumn Statement – is expected to become law in the spring of 2019.

It’s long been called for by frustrated tenants and campaign groups such as Generation Rent, who have welcomed the government’s stance, but letting agents have warned that it could ultimately be renters that suffer – in the form of higher rents – as agents offset their losses in revenue by charging higher fees to landlords, who in turn pass these extra costs on to tenants.

A short timeline of events

November 2016 – in his first Autumn Statement, Chancellor Philip Hammond included the shock announcement of a ban on upfront letting fees charged to tenants.

April 2017 - a six-week public consultation was launched, inviting views and comments on how the ban on letting agent fees in England should be implemented and enforced. More than 4,700 responses were received.

November 2017 – a year after the initial announcement, the draft Tenant Fees Bill was introduced to Parliament, with the government taking on board the views expressed in the consultation and working out the best ways of implementing the ban. 

March 2018 – the Housing, Communities and Local Government Select Committee carried out pre-legislative scrutiny of the proposed Bill, publishing a report which recommended that security deposits should be capped at the equivalent of five weeks’ rent in recognition that finding six weeks’ worth of rent can cause financial difficulties for tenants, and that landlords should not be able to retain the full holding deposit if a tenant fails a reference check despite providing accurate information.

2 May 2018 – new Housing Secretary James Brokenshire introduced the Tenant Fees Bill to Parliament, while the government also issued its official response to the select committee’s report on the draft Tenant Fees Bill. The bill now begins its formal journey through Parliament.

Spring 2019 – the government says the new laws are unlikely to be introduced until spring 2019 at the earliest.

What does the Tenant Fees Bill include?

The Bill outlines the government’s approach to banning letting fees for tenants. The key proposals are as follows: security deposits must not exceed the equivalent of six weeks' rent; holding deposits will be capped at no more than one week’s rent and there are new requirements for landlords and agents to return a holding deposit to a tenant; and the amount that can be charged for a change to tenancy will be capped at £50 unless the landlord proves that greater costs were sustained.

Furthermore, the new legislation will enable the appointment of a lead enforcement authority in the lettings sector, prevent landlords from recovering possession of their property via the section 21 notice until they have repaid any unlawfully charged fees, and give local authorities the ability to ring-fence any money raised for future local housing enforcement.

As well as rent and deposits, landlords and agents will only be allowed to charge fees for utilities, communication services and council tax, payments arising from a default by the tenant (such as replacing lost keys), and a change or early termination of a tenancy which has been requested by the tenant. It will be illegal for agents to charge for things such as inventories and referencing.

How could tenants benefit?

Supporters say the ban on letting fees to tenants will stop renters from being charged large sums for what some say is little to no work on behalf of the agent or landlord. In some cases tenants can be paying over £2,000 in first month’s rent, deposit and tenancy fees, which campaign groups say is simply unaffordable for many.

At the moment, tenants pay an average of £200-£300 in letting fees per tenancy, although the government says for many renters it is substantially more than that. Campaign group Generation Rent revealed that the average two-adult household is shelling out £404 every time they start a new tenancy, with fees ranging from just £40 to above £800. According to housing charity Shelter, around one in seven tenants pay more than £500.

As a boost to the finances of renters, it’s easy to see why a ban on tenant fees would make a difference – and why many renters back the prospect of the ban.

The Housing, Communities and Local Government Committee said the proposed legislation has the ‘potential to make a difference to millions of people by cracking down on unfair fees and saving tenants hundreds of pounds’, while also helping to make renting fairer and easier.

Advocates also point to Scotland, where a ban has been in place since 2012 without any noticeable impact on letting agents or landlords, or any drastic increases in rent, as clear evidence that such measures can be successfully implemented.

What are the potential downsides?

The main argument against the ban is that tenants – the intended beneficiaries – will actually end up being worse off in the long-term. The thinking goes like this: to offset a big loss in their revenue, letting agents will have no choice but to charge higher management fees; in turn, landlords will charge higher rents to ensure they can afford these increased management fees.

There are also concerns that thousands of letting agents could lose their jobs as a result of the ban, with the government’s impact assessment suggesting that the cost to letting agents in the first year of the ban could be up to £157 million, while landlords would be hit with a collective cost of around £84 million.

The situation in Scotland suggests something different, and the Welsh government has also announced its intention – after a consultation period – to introduce a Bill to the Welsh Assembly to ban fees in the private rented sector. The thirst for change in the private rented sector is clearly there, and while the proposed ban will be very unpopular among letting agents, renters will be much happier with the changes.

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