Government faces backlash over deposit cap U-turn

The government recently announced a U-turn on its plans to cap tenant deposits at six weeks rent, with the amount tenants have to pay upfront to secure a home now set to be cut to five weeks for rentals under £50,000.

A deposit of six weeks’ rent will continue to apply where the annual rent is £50,000 or more.

Controversial measures

As part of the proposed ban on upfront fees to tenants, surprisingly announced by Chancellor Philip Hammond in the Autumn Statement 2016, deposits were set to be capped at six weeks’ rent – although some, including London Mayor Sadiq Khan, have called for this to be lower, urging that rental deposits be capped at three weeks’ rent instead.

Now, under planned amendments to the Tenant Fees Bill – which is currently passing through the Houses of Parliament and is set to reach the report stage on 11 December 2018 - landlords will only be allowed to charge tenants a maximum of five weeks’ rent for deposits if their annual rent is less than £50,000.

It’s a move that hasn’t gone down well with landlord groups, who anticipated the change and have reacted with fury to the announcement.

Communities Secretary James Brokenshire said the proposals would be a further step towards preventing tenants from facing costly upfront fees when they first move into a rental property.

“Everyone deserves a home to call their own. Yet for some renters, moving to a new house can be difficult due to high upfront costs and letting fees. This is unacceptable. I want to see a housing market that truly works for everyone, and one which provides a better deal for renters.”

This is a considerable change of direction from May this year, when the government defended its decision to cap deposits at six weeks rent. The Housing, Communities and Local Government Select Committee had recommended a reduction to five weeks, but the government said at the time it was not accepting this recommendation. “There is a balance that must be struck between providing tenants with greater affordability whilst ensuring landlords have adequate financial security for their assets.”

It’s this about-turn that has so angered the industry. Reacting to speculation that the government may be reneging on its previous position, David Smith, policy director for the Residential Landlords Association, said: “Landlords will feel badly let down by a government which says it wants to support good landlords. The government had accepted that a cap of six weeks was the minimum many landlords required. This is needed to address the problem of tenants who fail to pay the last month’s rent and leave a property damaged.”

He added: “Ministers claim that they want to cut the cost of renting yet this is another measure the government is taking that will further cut the number of landlords and properties available as demand continues to rise, so actually driving rents up.”

Richard Lambert, chief executive of the National Landlords association, also weighed in, saying that a six-week cap was the ‘lowest landlords find acceptable’.

“Does the government really not realise that if landlords don’t think the deposit covers the risk of damage or unpaid rent, they will be even more cautious about who they let to?”

“All this will do is make it harder for tenants with poor credit ratings or who want to have a pet to find a suitable home. This is clearly a political move aimed at the renters’ vote. It is not a policy for business.”

Further amendments

As well as the change to the deposit cap, other amendments to the Bill put forward by the government include protecting tenants from fees by restricting the type of default fees that can be charged by landlords and property agents.

As a result, landlords and agents will only be able to charge fees to replace lost keys or for late rent, but they will still be able to claim back damage costs through the tenancy deposit at the end of a tenancy.

The amendments, though, will ensure that landlords and agents are unable to write many different default fees into a tenancy contract, while renters will also be protected from being charged hundreds of pounds for a damaged item that actually only costs a few pounds to replace.

When will the Tenant Fees Bill become law?

For a while now, ‘spring 2019 at the earliest’ has been the government’s stock response to the above question. But, with the ongoing distraction of Brexit and the sensitive nature of the Bill – with strong support and strong opposition in equal measure – it could be implemented much later than that.

In November 2016, the government said letting agent fees to tenants would be banned ‘as soon as possible’, but it’s been a slow process since then. The Bill still has to pass the report stage and third reading in the House of Lords, before returning to the Commons for a consideration of amendments. After this, it can receive Royal Assent and officially become law.

A smooth system to help agents adapt

Letting agents are expected to be significantly affected when the new rules come into play – with ARLA Propertymark research on the economic impact of the ban on letting agent fees suggesting that 3,000 jobs could be lost and agents stand to lose £200 million in turnover in the event of an outright ban.

This is why letting agents have been urged to get themselves prepared for the changes, seeking out possible alternative revenue streams – such as short-lets management or offering expert advice to Build to Rent developers – as well as streamlining existing processes for maximum efficiency.

To make this possible, you need a software system that allows you to manage all aspects of your business in one place – remotely if need be – at the click of a button.

At Gnomen we provide an all-in-one, cloud-based system, which can be accessed from any device, from anywhere in the world.

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