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27 March 2015

Want to make life better for Britain’s renters? Here’s how

It's time to end the great lettings agent swindle.

By laura rodrigues

With private renting becoming the new normal for millions of people – including growing numbers of families with children – this could be the first election in which renters make their voices heard. Renters now outstrip homeowners in a significant number of constituencies. And with 80,000 people coming to Citizens Advice every year with a problem with their private rental accommodation, this is clearly a market in need of radical reform.

When it comes to renters’ frustrations, letting agents are near the top of the list. They’re the gateway to the private rental market and for many years there’s been widespread evidence of them hitting renters with sky high fees and poor service. Recently, there have been efforts to boost standards in the market, raising transparency over fees and introducing new redress schemes for when things go wrong. So have letting agents stopped taking advantage of renters? Our new report suggests not. We find widespread evidence of the routine exploitation of renters by letting agents, all ultimately down to one fact: competition in the market isn’t functioning in any recognisable sense.

Take our findings on letting agent fees. It’s not surprising that most letting agents (88 per cent) still hit renters with extra charges on top of rent and deposits. Nor is it particularly surprising that these charges are high: we found fees totalling over £330 on average. What’s surprising is that fees vary so wildly and inexplicably. Our survey of letting agents finds that charges for ‘reference checks’ range from £6 to £300 while fees for ‘contract renewal’–for doing little more than printing and signing a document–range from £15 to £300. Moreover, fees bear no apparent relation to the cost of the service provided. We find letting agents charging up to £300 for credit checks which are widely available on the open market for £25.

Inexplicable variation in prices and no link between prices and quality–that’s not a well-functioning market in any recognisable sense. So why do letting agents get away with it? And why isn’t more transparency over fees helping? Because competition in the lettings industry just doesn’t work like that. We find that only one in four renters even considered letting agent fees when choosing their last property. You only have to think about your last property move to see why this is so. When you rent a flat you don’t compare letting agents, shopping around on the basis of their fees and services. You choose between properties, shopping around on the basis of things like rent and location. The letting agent, fees and all, is an afterthought at best. At worst it’s an unavoidable imposition, with fees landing once you’ve signed a contract, put down a deposit or finalised a living arrangement.

This all helps to explain why efforts to improve transparency miss the mark. They don’t reflect the reality of how renters or letting agents behave, nor of how the market operates. The government should ban letting agents from charging fees to renters for services that are part of the routine letting and management process. The result would be a business model more akin to employment agencies, in which fees are charged to the employer and not the employee–and in this case to the landlord and not the tenant. This would be a perfectly viable model. And it’s one that’s already working in Scotland, where letting agent fees were banned in 2012, with no clear evidence that banning fees has pushed up rents. As politicians prepare to position for the renters’ vote, it’s time to give England’s renters the same level of protection.

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