My Lords, I let your Lordships know that I am registered as a vice-chair of the All-Party Group for the Private Rented Sector.
In England, one-quarter of all families with children now live in a private rented home. In the UK, £48 billion is spent each year on rent for privately rented homes, double the figure for 10 years ago. Government data released yesterday show that the median monthly rent in London is now £1,473, a rise of 13% over the last two years. Salaries, as we are all aware, have come nowhere near to matching those rent rises. The number of renters is soaring, monthly rents are soaring and up-front costs are soaring. The sector is changing at a rapid and unsustainable pace and pushing many on low and average wages to crisis point. Ending of a private tenancy is now a leading cause of homelessness, and that does not include the hidden homeless who do not show up in any of the data. One in four renters now say that their last move strained their finances and more than one in three took on some form of debt to pay for it.
This amendment goes to the heart of one of the key issues for renters: high up-front costs, which are a barrier to moving into a home. Ironically, these are even higher for those on low incomes, who are seen as more of a risk to a landlord. Of course, those tenants should be in social housing—we have debated this a great deal and will continue to do so. According to Shelter, one in four renters moved home in 2013-14 and 29% of renters have moved three times or more in the last five years. That rises to 37% if they live in London. Shelter estimates that the median cost of moving for a private renter is £1,500 but we need to ask: how often will that be paid? As I have just explained, it could be paid as many as three times in a five-year period. That is the median cost; for many, it is much higher, with two or three months’ rent demanded up front along with the deposit, as well as letting fees.
Shelter’s research shows that average letting fees are £355 per move, with one in seven people paying £500. On rare occasions, renters have been forced to pay fees of £900 or more to a letting agent, simply for the privilege of moving into a home. Reference checks, credit checks, administration fees, inventory fees—the list goes on. Invariably, the fees charged are extortionate compared to the cost actually incurred by the agent and they are not necessary. Furthermore, any cost actually incurred should be covered by the lettings agent’s client—the landlord—not by the tenant. Far too often these high up-front costs are proving a barrier to tenants, who simply cannot afford to move.
This week Radio 4 broadcast a documentary, presented by Sarah Montague, called “After Cathy”, 50 years on from Ken Loach’s “Cathy Come Home”. It featured the audio diaries of three homeless people over the course of a year. One of them, Zara—not her real name —from London, a teacher and mum of a three year-old and an 11 year-old, had lived in the same private rented home for six years when her landlord put up her rent. She could not afford to move to cheaper accommodation because she could not afford the up-front costs of moving. This teacher is now homeless and has been living in emergency accommodation with her children for a year—a teacher. Does anyone in this Chamber really believe that this teacher, who could not afford the up-front costs to move to cheaper accommodation, would have been helped by a nice clear and transparent breakdown of the additional costs of the credit check, the inventory check, the administration charge and the cleaning costs, on a nice large poster in the lettings agency’s office that complied fully with the Consumer Rights Act, with clear guidance about who she could complain to if the fees were not sufficiently transparent? Does anyone genuinely believe that at that critical moment when she could not afford the up-front costs to move somewhere cheaper, transparency would have made the difference? It would not.
So the critical question in this key amendment and this part of the Bill is what to do about up-front costs—nothing else. I suspect the Minister will tell us that if we take away lettings agency fees from tenants so that only landlords pay them, as in Scotland, rents will rise. But Shelter’s research surveying 120 landlords found only one who had noticed an increase in agency fees and had passed this on to tenants. Of the 50 Scottish letting agency managers it surveyed, 76% either were positive about the change or said it had had no impact. If the Minister is going to say that he is not convinced by Shelter’s research on rents and lettings agencies in Scotland, will he please demonstrate that there is alternative research or a study that the Government have conducted which counter that claim? If there is no such research, I am sure he will tell us.
At Second Reading, the Minister, the noble Viscount, Lord Younger of Leckie, also said that tenants would still end up paying, but through higher rents. If the Minister makes that argument today, could he please tell us where the evidence comes from for it? The evidence from Scotland suggests that this is not the case. But even if it is, tenants would be better able to absorb a smaller rise over a 12-month period than having to pay the up-front costs in advance, with lettings agency fees on top. It is the up-front costs that
this amendment and Bill seek to remove. I apologise for labouring the point but I want the Minister to answer specifically about up-front costs.
I am moving Amendment 1 having reached the conclusion that the list of potential fees in the Bill, as drafted, would leave too many options for newly named fees to be charged to get round the list outlined in Clause 2(2). The proposed new section originally specified registration fees, administration fees, an inventory check and reference, extension, renewal and exit fees. This amendment therefore bans all fees from the tenant to the lettings agency and specifies that charging a fee to a tenant would be an offence under that section. Subsection (2) of the amendment clarifies that this refers to anything other than the deposit and rent.
Subsection (4) would enable the Secretary of State to make exemptions through regulations, so that if evidence emerges of services in respect of which there is value to the tenant in charging a particular fee, this can be done. I do not anticipate any such fees but my new amendment allows for the possibility, if concrete evidence was indeed found that a fee for a specific service would be in the best interest of the tenant in some way. Such an approach would ensure that all interested parties can be consulted and allowed to have proper discussions about services where there is value. It also enables the Secretary of State to set through regulations a maximum amount for those exemptions.
While I have made it clear—if not somewhat laboured the point—that the central proposal is about taking away unnecessary up-front costs to the tenant and that transparency, while welcome, is not the solution, I would like to pursue one more matter about transparency. At Second Reading the Minister, the noble Viscount, Lord Younger of Leckie, said that,
“the Government have committed to reviewing the impact of letting agent fee transparency later this year ”.—[Official Report, 10/6/16; col. 987.]
I believe that November is a later part of the year and would like the Minister to tell us what progress has been made on that review.
If, when it comes to up-front letting fees charges to tenants, the Government are waiting, as many suspect, for some industry-led solution to come forward, I believe that they will be disappointed. The Government will have to choose whether to back the “just about managing” tenants, to use the current terminology, who now constitute 25% of the population, or to back an industry which, according to the evidence available, is able to weather the proposed change in this Bill with ease.
I conclude at this stage with what I believe is the significant challenge before us in the Bill. Is there a way to reduce up-front costs for tenants in the private sector when they move? I believe that there is. Do not allow this Government to hide behind the smoke and mirrors of transparency, however welcome that is. There is one central question in this section of the Bill: can up-front costs be transferred to landlords? Shelter’s evidence from Scotland—in the absence of any other—has shown us the way. There is no counterevidence. This amendment provides a positive yes and I beg to move.