Scotland and parts of Australia have done it, could England be next?

Imagine walking into the Carphone Warehouse or Phones 4 U, looking for a new mobile phone contract. You’d be astonished to be asked for £350 just so the sales assistant could sign you up to Orange, T-Mobile or O2 to get your new contract phone. And you’d rightly question why the cost isn’t part of the monthly bills you’ll pay.

Well, this is what happens every day when someone finds a home to rent through a letting agency.

You’d never expect to pay the Carphone Warehouse on top of what you already pay O2. But renters are routinely forced to fork out hundreds of pounds to a letting agency just to get a tenancy, on top of the rent they will pay every month. And all this is in addition to the money the landlord has already paid the letting agency to find the tenant and set up the tenancy – which is typically up to twelve per cent of the monthly rent.

Why is this important? Well, not only is it unfair, but it adds to the expense of moving house – already a struggle for many people. Paying sky-high fees is a further financial pressure on renters already struggling with rising rents. Unexpected letting fees squeeze people’s incomes, forcing some to cut down spending on food or fuel, and pushing others to borrow or go into debt. Our report Letting Agencies: the price you pay, shows 27% of renters who used a letting agency had to borrow money because of the fees charged. Sky-high fees are not confined to a minority of agencies but these practices are widespread across the industry.

 

That’s why Shelter is calling for an end to letting fees. From today we’re asking people to sign our petition urging the government to take action. Scotland and parts of Australia have shown it’s possible – there the costs of the letting agency’s service are paid by the customer, i.e. the landlord.

For too long the lettings market in England has gone unchecked.  As the demand for rental properties has rapidly outstripped supply in many parts of the country, letting agency fees have risen and risen. At the moment letting agencies can charge renters whatever they want on top of what landlords already pay them. Estate agencies by contrast only charge the seller agency fees. Given that many letting agencies also act as estate agencies, we have the bizarre situation of two businesses operating out of the same premises, with one regulated and the other not.

And it’s not just renters calling for action. Many landlords aren’t aware that their letting agency is charging fees to prospective renters at all and some landlords have said they don’t think renters should pay any fees. Landlords like Dorrington PLC, a large residential landlord who’ve come out today in support of ending letting fees. And small landlords like Sam Anson, from Manchester who told us: “I don’t see why tenants should pay any fees. Landlords can pay for things like the credit check”.

Some argue that all letting agencies need to do is to advertise the fees they are charging. Of course, it’s encouraging to see the Advertising Standards Authority clamping down on agencies that refuse to outline their fees upfront.  But renters don’t want to be kindly informed of rip-off charges that are coming their way; they want the rip-off charges to stop altogether.  Two-thirds of people who have dealt with a letting agency in the past three years support a ban on fees to renters.

Asking landlords to cover tenancy set-up costs is a fairer way of doing business:  it’s landlords, not renters, who have the power to choose one agency over another, to negotiate the fees charged and to terminate a contract.

Of course, the issues with letting agencies don’t begin and end with fees.  We will continue to press for better protection for renters using letting agencies. We’ve already had some success – last month we overturned government opposition and got renters using letting agencies the right to have their complaints heard independently.

Banning agency fees won’t radically solve the housing crisis or reverse the squeeze on middle and lower income households.  But this simple and effective change – banning fees – could help with the financial pressure on the nine million people now renting in England.

With Scotland and parts of Australia already leading the way it’s now time for Westminster to follow suit.

Want to read more about our call to end letting fees? Read our policy report Letting Agencies; the price you pay and our full campaign FAQ.

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4 Comments
  1. As a landlord I completely agree, and feel that tenants are being ripped off. But there is another scandal that puts up costs for landlords that are passed on to tenants. This happens particularly with houses that have been converted into flats; the freeholder, who is usually not one of the leaseholders, employs a managing agent who not only charges a large fee (quite likely shared with the freeholder), but is also in cahoots with the company that provides building insurance. The latter charges a premium that can be 3 times what would be charged under normal circumstances. Buying the freehold from the freeholder can be much more costly than one would expect, so that the reduced expenses are initially used to offset the cost of the freehold rather than to reduce rents.

    Another problem is that tenants on social security used to have their rents paid directly to the landlord. Studies have shown under the new legislation that even reputable tenants will start to fall behind in their rent. This has led many landlords to refuse to take on tenants who are on SS. of course one benefit of this is that this action will lead to lower rents, but the cost, namely the increase in homelessness among SS tenants, will outweigh this.

  2. I agree with some of the points raised in this policy and there is no doubt that some letting agents over charge. Some still charge for a renewal which is wholly unfair. But from the landlords perspective, it is important to be able to carry out a credit check in the knowledge that you are likely to create a tenancy. If a tenant can prove their credit worthiness, then landlords there would be no need for the additional cost, but generally they can’t.
    So the alternative to this is making the landlord pay who will put up rents as this represents an additional cost to the business. The author draws the analogy of Carphone Warehouse, perhaps an Insurance Broker is a better example – and many charge for their services a fee additional to the premium.
    Fees are not bad per se, it is the companies (agents and landlords) who see them as an opportunity to increase their margins rather than pass on costs. And they give the rest of us a bad name.
    Better to bring in compulsory registration of Landlords and Agents with the sanction of being struck off if you don’t meet the criteria.

    1. The National Landlord Association carry out comprehensive tenant checks for landlords. The maximum price of this is £33 per person. Most agents I know charge between £100 and £300 per person. The mark up is quite disgusting. I don’t see why landlords shouldn’t foot all the costs anyway. Yes they have to deal with bad tenants occasionally. But my goodness tenants have to deal with some very bad landlords too. Housing is a basic human need and some people are getting very rich from it. Others are struggling to survive. I know who I think should shoulder the greatest risk in the deal!

  3. I am reading this on 18/07/2015. It is a little over 2 years since this campaign started. Can you please provide an update on what happened with this ? I have signed the campaign today, but I see that Agents are still ripping of private tenants with £500 to £600 or even more in areas like Farnborough , Woking ! After checking agency fess of some 7 /8 agents, I found only one(Aston Mead looks like the better one among the lot) who charged £325.

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