Wednesday, 21 May 2014

The regulation of letting agents

I have written before about private rented housing and, specifically, about the investigations and recommendations of the all-party communities and local government select committee, which I chair[1].

The housing crisis is pushing home ownership out of reach for many people. We are building less than half the number of homes we need to keep up with demand. The current coalition government has presided over the lowest level of house-building in peacetime since the 1920s.

Since its launch, I have been asking serious questions about the appropriateness of George Osborne’s Help to Buy programme. Now, as I write, the Governor of the Bank of England says the housing market has “deep, deep” problems and is the “biggest risk” to Britain’s economic recovery sending a clear message to the Bank’s new Financial Policy Committee (FPC) to consider early intervention.

Meanwhile, 9 million people now rent privately including over 1.3 million families with children.  Nearly half of private rented households are over the age of 35. Many want the same security and stability they would have if they owned a home or had rented from their council.

But rules on private renting have not caught up with these changes, leaving people struggling with the growing cost of renting and with the insecurity and uncertainty built into the rental market. I shall write separately about rents and tenancy terms, but want to concentrate here on the regulation of letting agents.

The cost of letting agents’ fees, which can be up to £500 every time someone moves house, has added to the growing cost of renting. There are large numbers of complaints about agents, almost all about fees and charges. It is not just that there is one fee upfront for a tenancy agreement; there are also the charges for inventories and for credit checks. 

People enter into a viewing not knowing what the ultimate charge will be. It is a charge they have to find upfront as a prospective tenant; at the same time as they are trying to find the deposit.

The process gets repeated to a degree every time people renew their tenancy after six months or 12 months, and that militates against having longer term contracts. Agents see this as an incentive not to let longer term contracts because short-term contracts mean renewals and more fees for them. 

The Committee said there should be absolute transparency of fees upfront when a property is advertised and it must be clear what the totality of charges to tenants will be, and there should be no double charging. If there is transparency, it will be harder for a letting agent to charge a tenant and a landlord for the same thing, which happens at present.

We did not then recommend a complete abolition of fees to tenants. What we said was that it has been done in Scotland and that we should review the Scottish experience. We will do that in the autumn. 

We’ll also consider whether banning charges to tenants means higher rents. If so, there is a question as to whether tenants favour paying slightly more in rent rather than being forced to pay massive fees upfront, often on a frequent basis.