Under the plans, agents and landlords would only be able to charge renters the monthly rent and a refundable deposit.
The ban includes preventing landlords and other third parties from passing on the fees to tenants by the back door.
In the consultation, the government recognised the power imbalance in the lettings market and seeks to redress that by putting the onus on landlords to shop around for more competitive fees and better services.
Reconsider business models
“Agents will need to consider their business models in light of the ban and consider how they should charge for their services,” the consultation said.
“The time of, and services provided by, letting agents should be reimbursed but this should be by landlords rather than tenants. We would not expect the full level of tenant fees that are charged currently by letting agents to be passed on to landlords since there is evidence that a number of agents are charging excessive fees and that some agents are double charging landlords and tenants.
“Under the ban, all agents will need to be efficient and fair with their fees in order to secure landlords’ business and therefore the fees charged should be a fair reflection of the services provided,” it added.
Long running issue
The proposal to ban letting agent fees was originally floated by chancellor Philip Hammond in the Autumn Statement 2016.
It has been a long running concern, with the Office of Fair Trading (now largely replaced by the Competition and Markets Authority) demanding greater transparency in letting agent fees four years ago.
The chancellor’s announcement received a mixed reaction from Mortgage Solutions’ Marketwatch experts.
A report from the charity Shelter found that nearly one in four people in England and Wales felt that they had been charged unfair fees by a letting agent. Fee levels varied considerably and the charity found that one in seven tenants paid more than £500.
Research by the Department for Communities and Local Government (DCLG) in its English Housing Survey reinforced how difficult it was for tenants to find and compare agent fees since it was not always simple to either find the fees on the agent’s website or to understand exactly what was included in them.
It also revealed a massive difference in the level of fees charged by agents for similar services. (Click to expand graph.)
Publishing the consultation, housing minister Gavin Barwell said: “We’re determined to make all types of housing more affordable and secure for ordinary working people. Tenants should only be required to pay their rent alongside a refundable deposit and not face hidden fees.
“Our housing white paper sets out other ways we will help those renting, including building more homes for rent and providing longer, family friendly tenancies,” he added.
ARLA Propertymark (formerly the Association of Residential Lettings Agents) chief executive David Cox reacted angrily to the ban.
“The government’s housing policy is shambolic and today’s consultation contradicts its already stated aim to encourage longer term tenancies,” he said.
“Independent analysis launched at ARLA Propertymark’s annual conference last week revealed that if an outright ban was introduced, rents will increase by £103 per year which will only serve to financially punish long term tenants.
“The decision is a short-term crowd pleaser and we are disappointed DCLG has not considered our proposals in today’s consultation. We urge the government to use this process to think again to ensure that consumers, and the wider economy are not penalised by contradictory government policies,” he added.