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Letting agents fees are crippling low to middle income families says report

Renting in the darkRenting in the Dark is a report published by Resolution Foundation, an independent research and policy organisation concentrating on people with low and modest incomes.

The report is by Louisa Darian and was published in December last year, so I am a bit late in finding out about it!

Statistics and problems

The report starts by saying that some 17% of us live in private rented accommodation (up from 9% in 1991) and in 2006 two thirds of these involved a letting agent.

This is particularly relevant for the low to middle income sector as the foundations research suggests that it would take a low to middle income family over 30 years to save for a deposit to buy a property in today’s housing market. They will also find it more difficult than in the past to access social housing.

However all is not well in the letting industry.  Although some agents are good, there are massive variations in prices and standards across the country, in particular in agents fees.

These can be crippling for low and middle income families as they generally need to be paid before the deposit for their previous property has been released to them. As they generally have no savings, they have to borrow from family or short term loan providers (often at high interest) to meet these costs.

Agents fees

Here are a few of the points made by the report:

  • In London the upfront costs for a single person renting a one bed property are £2,166 compared to £1,028 in Manchester
  • There is a big variation among individual agents over the fees charged. Virtually all charge a deposit, but other fees such as tenancy renewal fees, check in and check out fees and holding fees are charged by some agents but not by others
  • Many agents appear to be charging fees for the same work to both landlord and tenants, and the fees are often disproportionate to the actual work involved. For example most agents have a standard form of tenancy agreement which just needs to be completed with the relevant details
  • Tenants often do not find out what the fees are until they are committed to rent the property. However in many areas the shortage of properties available to rent is such that they have no choice but to pay what is asked or lose the property. Properties in some areas are rented within hours of going on the market.

Resolutions recommendations

These are the main recommendations made:

  • Letting agents to be brought within the Estate Agents Act so the Office of Fair Trading can ban agents who act improperly. At present if an estate agent is banned he can set up the next day as a letting agent with impunity
  • All letting agents to be members of an Ombudsman service so tenants have some redress
  • Agents should be required to state their fees clearly on their paperwork and websites in a way that is easily comparable, so that tenants will know in advance exactly how much they will have to pay BEFORE they commit to rent the property. This could be done by making it a requirement to the code of practice of the Ombudsman service
  • Government to make use of the 2012 re-tendering process for the tenancy deposit protection schemes to find ways to make it easier for tenants to use their old deposits when moving in the private rented sector, and
  • Local authorities to extend rent deposit schemes to members of the low-to-middle income group.

These would go some way towards rectifying the problems. However whether the government, who appear to think that most tenants are happy renting in the private sector, will do anything is debatable.

If you want to read the report (which is not a long one) you will find it here.

(See also the comments area below and >> click here to read our terms of use and comments policy)

Important note. If you are reading an old post, remember that the law may have changed since it was written.

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10 Responses to Letting agents fees are crippling low to middle income families says report

  1. I am just about to sign my renewed tenancy agreement, which is exactly the same as the old one and being charged £84 to do so. I’ll bet the landlord too is also signing for a few photocopied sheets and a signature.

    And yes, thanks for picking up the never mentioned point Tessa, that tenants, when moving often have to borrow money to cover the agent or landlrod hanging on to the previous deposit for the maximum 10 days allowed. This is a serious problem with deposit protection rules, unless the tenants has £2,000 squirreled away to cover the gap, or finds a sofa to sleep on before they can move into their new accommmodation.

  2. Just to be clear, the deposit will usually make up less than half of the £2000 or so required up front.

    If landlords are ‘hanging on’ to the deposit it is usually not without good reason and I think 10 days is a perfectly acceptable time frame.

    The deposit may be the tenant’s money but the landlord/agent should have a reasonable amount of time to inspect the property and negotiate with the tenant which may require the involvement of contractors to provide quotes.

    The fact is that even if the deposit was returned in full within say 24 hours of the tenancy ending, it is still never going to be soon enough to pay the deposit on the new property.

    I wholeheartedly agree with all the proposals. Although due to the nature of deposits in their current form it will never be possible for tenants to use their old deposit for the next property.

  3. @Jamie You are quite right about the deposit, instant payment is simply not possible.

    I wonder whether some sort of national modest cost bridging loan facility could not be set up with the tenant, as part of the process, authorising the former agent / landlord / DPS to pay the deposit money to the loan organisation as full or part repayment.

  4. I take on board your point but this is a major problem for tenants that nobody talks about and it isnt just in disputed cases that this happens.

    Many of my clients have the same problem and I myself have experienced it last year when I moved. The deposit (£1,700)was undisputed but the landlrod held onto it for the maximum period allowed of 10 days. we had to borrow the new deposit so we could move.

    As Tessa suggests, a bridging loan might help, maybe through the credit union or supplied by the schemes themselves.

    Jamie when you say the deposit is half the money, in London that is still around £1,000 that a tenant has to find and also most agents in London these days are asking for 6 weeks money as a deposit as standard

  5. I like the idea of the bridging loan. It would have to be government-backed as I think the the risks would be too great even for not-for-profit organisations.

    Just one other point:

    “fees are often disproportionate to the actual work involved”.

    This one always worrys me – don’t we live in a free market economy?

    It doesn’t actually cost a lawyer in a city legal firm £700 an hour to give legal advice but that’s what some charge. Likewise, it doesn’t cost a plumber £50 just to knock on someone’s door either.

    Some Agents will have higher overheads than others. It may not cost much to photocopy an agreement, but the copier has to be paid for, so do the staff, the premises and the computer and software systems etc.

    I’m glad price fixing wasn’t one of the proposals. Let the market sort the wheat from the chaff.

  6. Actually that is a fair comment Jamie. It isnt just about the task at hand, it comprises skills, training, knowledge etc.

    Solicitors will often charge £2,000 to get an injunction for someone but the court fee for it is only £175. The rest is the expertise and years at uni training to do it.

    Restaurants will usually price meals with a 100% markup, which can be a useful guide. You know if you pay £25 for a main course then usually the ingredients cost £12.50, the rest is expertise, wages and rates.

    Having said that I do think there is such a thing as excessive fees and letting agents can be prime culprits sometimes.

  7. Granted much of the cost of services is for the knowledge and experience if the person offering the service.

    We are told though that many agents don’t have this. Solicitors are not allowed to practice until they have passed rigorous exams and had a couple of years of practical training. Some agents will have this but many won’t.

    There is also the fact that some agents seem to be charging the landlord and the tenant for the same service. This cannot be right.

  8. That is always the key thing for me. Landlords should go to agents to perform a range of services for them. If an agent gets something wrong it can cost the landlord a fortune and even drop them in legal hot water so the stakes are high and yet nothing is required of them to operate.

    My partner Frazzy is a self employed travel agent and every year she has to sit an exam that lasts a whole day just to keep her licence to sell travel insurance to her clients.

    What I find interesting about licensing and regulation of agents is that a couple of years ago when I started wittering on about it, complaints all came from tenant/advice sector but increasingly you see calls for regulation coming from agents themselves. As more rogue agents operate and more stories hit the press, almost weekly, of agents going out of business owing money many are feeling their genuinely good service is being dragged down by inept and incompetent ones

  9. I think we can all agree that potential tenants should know the details off the agent fees before they are expected to commit. As often the agent does not give out the paperwork until the day the AST is formally signed, this does not happen at present.

    I like the way that all loans must include “key facts” and an APR in their advertising, way can’t all agents be required to list all the fees clearly on all RightMove adverts?



About the post author:

Tessa Shepperson

Tessa is a lawyer and specialises in creating products and services which help landlords and letting agents learn and understand landlord & tenant law. For example, she runs the Landlord Law website (now in its 14th year) and is a director of Easy Law Training Ltd and Your Law Store. Tessa also sits on the Property Redress Scheme Council. When not working she enjoys reading, cooking and messing around on the computer. You can also find her on Google

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Tessa is an English lawyer specialising in residential landlord and tenant law.

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