Letting fees for tenants in the private rented sector in England have been banned under a draft bill introduced to Parliament.
The Government said the move will help to improve transparency, affordability and competition in the private rental market, and prevent agents from double charging both tenants and landlords for the same services.
Those who ignore the rules will be handed a fine of up to £5,000, while subsequent breaches could result in criminal prosecution or up to £30,000 in fines.
The ban, which forms part of the draft Tenant Fees Bill, was originally proposed in last year’s Autumn Statement.
The bill suggests capping holding deposits at no more than one week’s rent and security deposits at no more than six weeks’ rent.
Strict rules will be implemented on the length of time deposits can be held after moving out.
The Government claimed the legislation would help millions of renters by bringing an end to costly upfront payments.
Research by the housing charity Shelter found one in seven tenants pays more than £500 in fees and a quarter feel they have been charged unfairly. Meanwhile, seven in 10 people believe letting fees affect their ability to rent a property.
Communities Secretary Sajid Javid said the Government is determined to make sure the housing market works for everyone.
“Tenants should no longer be hit by surprise fees they may struggle to afford and should only be required to pay their rent alongside a refundable deposit,” he said.
The bill will amend the Consumer Rights Act 2015 to specify that the letting agent transparency requirements should apply to property portals such as Rightmove and Zoopla.
eMoov chief executive Russell Quirk said the ban would make the process more transparent and consumer friendly.
But he added there is a danger agents will now try to recoup their losses through alternative means, such as charging higher fees to landlords themselves.
“This would be an ‘around the houses’ way of bypassing the ban on letting fees, as any additional cost to the landlord is likely to be passed down the line in higher rents. The only upside is that at least this won’t be payable upfront and will go some way in reducing the initial barrier to entering the rental market as a tenant,” Quirk stated.
Javid is also launching a consultation into requiring letting agents to be members of client money protection schemes. This aims to give tenants confidence that money paid in deposits is safe and that they can be compensated if it is not returned.
The Government has previously introduced measures that crack down on rogue landlords who shirk their responsibilities.
Earlier this year, the law was changed to allow councils to impose new fines of up to £30,000 as an alternative to prosecution for a range of housing offences.
DealMakerz thinks the new bill will create huge ripples in the lettings business for a number of key industry players.
Agencies like Foxtons are reliant on their lettings business as a regular form of revenue – obviously the fee ban will not have an immediate impact with most landlords expectant of the government’s much publicised pivot.
However, there is a real danger that traditional agencies long established lettings cash cow could be tortured by the dripping tap of the fee ban. High street agents like Countrywide are already facing disruption from online and hybrid agents, ramping up of stamp duty and a dull market. This wholesale government ban may be in the consumers interest, but we think it could have a lasting effect on not only the bottom line of these firms, but potentially the CEO’s who run them too.
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