A leading letting agent campaigning against rental sector deposits is warning that the industry might be hit with “astronominal” insurance premiums as a side effect of the government making Client Money Protection schemes compulsory.
The Department of Communities and Local Government last month confirmed that it plans to make membership of a Client Money Protection schemes compulsory for letting agents in a move designed to prevent people being left out of pocket when property management firms go bust.
Housing Minister Lord Bourne has confirmed to the House of Lords that the government will amend the Housing and Planning Acts to make membership of such schemes compulsory for letting agents and “consult on how mandatory client money protection should be implemented and enforced”.
Ajay Jagota, chief executive of KIS letting and depost replacement insurance operator Dlighted, says any announcement aimed at keeping client money safe is to be welcomed but warns of “unforeseen consequences” the industry should be concerned about.
“It’s the industry’s dirty little secret that client money is routinely used for supposedly prohibited purposes and in 2016 alone rogue agents were convicted of stealing £1m of tenancy deposits” he says.
“This misappropriation only gets exposed when people get caught with their hands in the till or when firms go under which doesn’t always happen and often gets hushed up. So no-one knows how much money is really missing or where it’s missing from” he adds.
Jagota calculates that £2.3 billion of client money is currently held by letting agents.
“It’s inevitable that underwriters will have to take this into consideration when assessing premiums, which could be astronomical if the true scale is uncovered and by that time it may be too late. As an agent I don’t want to be paying for the cost of money which may or may not be missing from my competitor’s client accounts” says Jagota.
“There’s also the matter that the decision assumes that the current Client Protection Schemes are working faultlessly, and I’m not sure they are. If you are member of certain trade bodies you get CMP as part of your membership and are audited accordingly”
But he says there are many examples - including one in Cornwall, publicised on Letting Agent Today recently - of apparently-audited firms going under or having staff members convicted of stealing from customers.
“The simplest step towards genuine client protection would be to for all existing tenancy deposits to be transferred into any of the three custodial schemes, which would reveal the scale of any missing money and highlight any rogue operators” suggests Jagota.
“Prior to the introduction of mandatory CMP this would allow insurers asses any risk and set premiums accordingly. If this doesn’t happen and insurers uncover the truth about missing client money no agent will be able to escape premiums which reflect the risk the insurers face. So be careful what you wish for...”