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Fees Ban: MPs tell government to cap rental deposits at five weeks

A Select Committee of MPs investigating the proposed ban on agents’ fees levied on tenants says the measure could save renters hundreds of pounds - but it urges the government to go further.

The Housing, Communities and Local Government Committee - which has looked at the fees ban proposal ahead of its formal progress through Parliament - says in a report out this morning:

- security deposits should be capped at the equivalent of five weeks’ rent, not six as the government originally suggested;

- landlords should not be able to retain the full holding deposit if a tenant fails a reference check despite providing accurate information;

- ‘default fees’ are open to abuse so the type and amount of default fee needs to be better regulated;

- additional funding should be made available to local authorities to enforce the legislation.

"With more and more people living in the private rented sector, this legislation has the potential to make a difference to millions of people by cracking down on unfair fees and saving tenants hundreds of pounds” says Clive Betts MP, chair of the committee.

“We believe however that there are clear improvements that could be made to the Bill that would ensure it has a much better chance of delivering on its aim of making renting fairer and easier” he adds.

“Moving home is already an expensive time and many people struggle to find large sums of money at the start of their tenancies to put down as a deposit. Lowering the cap from six weeks' worth of rent to five will help make the private rented sector much more affordable, while also keeping protection for landlords from rogue tenants.”

He says the committee also had concerns about how the law will be enforced. 

“Funding enforcement through the retention of fines gives local authorities a perverse disincentive to proactively engage with lettings agents and landlords. 

“If councils are to be given this extra enforcement responsibility, they must either be given extra resources or the maximum amount of civil penalty needs to be increased.”

The report concluded that it was unclear whether fees could be charged at the end of a tenancy agreement and it says it wants this clarified by government. 

The committee is also calling for greater clarity on what constitutes a reasonable default fee - a legitimate cost to the landlord that would be permitted under the legislation.

The government estimates that the average household in the private rented sector will benefit by between £18 and £50 a year from the reforms, but the committee heard that tenants could actually benefit by much more given renters paying an average of £200 to £300 in fees per tenancy. 

The Residential Landlords Association has this morning restated its recent research findings that 40 per cent of private landlords have faced tenants not paying their final month’s rent in the past three years. 

It says lowering the deposit cap would make it easier for the minority of tenants who cheat landlords out of the rent they owe as it will leave insufficient extra funds to deal with any major problems some tenants leave behind as well.

“Policy makers need to address the problem of tenants who fail to pay their rent with as much energy as tackling rogue landlords. Proposals to lower the cap on deposits paid by tenants will play into the hands of the minority of tenants who cheat those providing housing for them out of the rent they are legitimately owed” says Alan Ward, chair of the RLA. 

“We see also little point in calling for new powers to prevent landlords evicting tenants simply for raising complaints about standards in properties when powers already exist to outlaw this practice. What is needed is not new law but councils better enforcing the large array of powers they already have to root out bad landlords and tenants.” 

NALS, commenting on this morning’s report from MPs, says it echoes MPs’ desire to make renting more transparent and fairer. 

Isobel Thomson, NALS chief executive, says: “While we don’t agree with all the recommendations, the report makes some important points.”

She adds: “We were pleased to see the committee acknowledge that if councils are to be given this extra enforcement responsibility, they must have the maximum amount of civil penalty increased or be given additional resource.

“It is difficult to concur with the conclusion that fee ban increase will competition in the sector, we know many smaller agents will be forced to close or reduce staff. How will this aid competition? We also cannot concur with the conclusion that any rent increases will be easily absorbed by tenants in England. This is based purely on the experience in Scotland and we believe is the committee adopting a wing and a prayer mentality.”

You can see the committee's full report here.

  • Angus Shield

    I know I will be shot-down but at a recent seminar regarding GDPR (another industry ball-ache), the discussion steered to how we, as responsible Letting Agents, regard or value ourselves and our services.
    At the end of a very intelligent discussion we surmised that Letting Agents, as Conveyancers of a legal contract, enable an applicant to occupy a property governed on prescribed terms so Letting Agents are undertaking a semi-para-legal service and must be diligent so should receive a reasonable fee; you don’t get free wills to my knowledge!
    Is the Housing Minister going to look at Estate Agency commissions & Conveyancing fees in a similar way; maybe their Stamp Duty is an unfair charge to private homeowners despite it being their revenue for no effort?

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    I am building up to pulling out of BTL and let the f****** councils house people!
    Meanwhile, if deposits are capped I will increase rents and insure and guess what ? the tenant will end up paying for all this.
    Why this government tries to save tenants hundreds? they cost Landlords THOUSANDS!!!!!!!!!!!

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    The fact that they state that the tenants will save a couple of hundred pounds a year is a fantasy as the rents will of course continue to rise, we worked out that over the a year if rents increased by 4% then the tenants would have already paid more than if they had paid us fees, the government and shelter are really blinkered in this and do not seem to live in the real world. The BTL market has dropped, very few new landlords are coming through the door and many will leave. I hope the government is going to have a lot of vacant council houses for tenants given notice to leave once the fee ban is introduced.

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    Letting Agents fees were banned in Scotland putting more money into tenant pockets.

    When you have more money chasing the same amount of goods this leads to inflation which is exactly what happened in Scotland.

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    Having a capped deposit against non payment of rent is fine but the damage deposit maybe needs to be dealt with as a separate issue.

  • Andrew Hill

    I emailed Sajid Javid and friends about our advise to landlords to increase rents to absorb extra costs... Why have they not mentioned this when they release their reports? It has been made clear that over the lifetime of a 5 year tenancy, tenants will expect to spend an extra £3600 in rent if rents are increased in a way which absorbs these extra costs to landlords and agents within the first year of incurring them. But yes, it's "expected" that tenants will save up to £50 a year... Only in the very short term mind you, after all, our landlords can't just whack rents up. Instead, they must do it in increments to avoid rent tribunals.

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