Do transparent fees mean better renting?

Amid the pomp and ceremony of the Queens Speech on Wednesday, you may have missed the rather more low key news that a key part of the Consumer Rights Act 2015 came into effect. But this was actually very good news for 11 million renters, and a big win for Shelter’s campaign to improve private renting.

Under the new legislation all letting agents are required to publish full details of their fees, both online and prominently in their offices. Dishonest agents who charge hidden fees now face a fine, whereas previously those found guilty of non-compliance were merely named and shamed on the Advertising Standards Authority’s ‘rogue’s gallery’.

Initial evidence suggests that the ASA requirement did little to stop hidden fees. Our online tool for reporting them has been inundated with complaints. All too often tenants are stung by an unexpected charge or a mysterious ‘administration fee.’

Admittedly, the new powers to fine non-compliant agents are unlikely to eliminate this practice: only an outright ban on letting agent fees will achieve that. But this is still a welcome step forward – and offers an exciting opportunity for local authorities to do more to crack down on rogue agents.

Local authorities are now responsible for investigating renters’ complaints about letting agents fees. They are allowed to keep any fines they levy on agents for failing to publish fees openly – up to £5,000 – so they have a clear incentive to enforce the ruling (but maybe not the capacity…).

If local authorities do effectively police hidden fees, what will it mean for renters?

  • Renters will be able to know upfront all of the charges that apply if they enter into a contract with the agent.
  • They will be able to seek redress for non-compliance
  • Rogue agents charging extortionate fees will be publically named and shamed.

And if renters judge the fees agents charge to be too high, they can simply take their business elsewhere, right?

Wrong. In a properly functioning market, the tenant could shop-around to find an agent with the lowest fees. But the housing market is broken. There just aren’t enough affordable homes and as a consequence, competition for a decent privately rented home is intense. When a renter finds a suitable home they must sign a contract quickly or miss out. They just don’t have the luxury of finding another agent with lower fees.

Transparency also won’t improve affordability. The average renting household currently spends 40% of their weekly income on housing costs. That’s a significant amount – even before the huge upfront costs of a deposit, rent in advance and letting agent fees are taken into account. To ease the financial strain the Scottish Government banned letting agents from charging fees to renters in 2012, despite opposition from letting agent bodies and landlords, who warned that the shortfall would be made up by rent increases.

Contrary to the naysayers, Shelter has found little evidence in Scotland that letting fees were passed back onto tenants via a rent hike.

So although this is a welcome step forward, the government must honour its commitment to review the Consumer Rights Act transparency clause in a year or two. They need to assess whether transparent fees do enough to benefit tenants. We also hope that local authorities will seize this opportunity to police hidden fees and expose rogue agents, otherwise the benefits of transparency will not materialise at all.

And whether this reform is effective or not, we urge the government to go further and consider banning letting agent fees completely. For too long renters have been paying through the nose every time they move. It’s time they got a fairer deal.