Angry agent serves rent rise on Cabinet minister in fury at deposit cap

An angry lettings agent has emailed Cabinet minister James Brokenshire to show his disgust at the government’s U-turn over deposit caps.

In May the government said it would cap deposits at six weeks rent but on Tuesday it reneged on the agreement saying it would be five weeks for annual rentals of under £50,000 and six weeks for above. It was amending the Tenants Fees Bill to insert the new provision.

Now Andrew Hill of Leicester’s Harry Albert Lettings & Estates has emailed Brokenshire - the Secretary of State for Housing, Communities and Local Government - to say in no uncertain terms that the government’s about-face will lead to rent increases for tenants.

It’s a long but impassioned email and it sums up most of the views we’ve heard from agents contacting Letting Agent Today. Here it is in full:

Dear James Brokenshire, MP;

I’m writing to you today to notify you of an upcoming rent increase for all tenants in rented accommodation within the UK.

Please find attached notice of the rent increase in the local area of the House of Commons. It is unfortunate as landlords are expected to shoulder more risk with limited rewards but in the real world, this simply isn’t possible. 

The new announcement yesterday regarding the five week deposit cap will mean tenants living near the House of Commons will be set to pay an extra £399.30 per month in rent to recover the 6th week deposit during the initial fixed term of 6 months… Should tenants opt to remain for a further fixed term, they will have paid an extra £798.60 in extra rent with the difference between the rent and deposit being good tenants get their deposit back, good tenants don’t get their rent back. The rent increase notification is based on one of the cheapest, one bed rental properties I could find closest to the House of Commons.

In our local area, a £700pcm property would incur a rent increase of £26pcm, a much easier pill to swallow than that forced down the throats of London tenants, but for some of our lowest income tenants, this short increase is enough to push them below our affordability criteria; this means these lowest income tenants, some of whom are the most vulnerable within our society, will be at increased risk of rent arrears and, because most landlords are not charities and own property as an investment, similar to your own pension pot and any rental properties you or your colleagues own, this will lead to increased evictions.

As rents sky rocket, tenants will either be forced into properties that are too small for their needs that they can afford or pushed into substandard accommodation that’s cheap for a reason. Alternatively, those unable to find housing, including tenants on benefits (because housing benefit has been frozen until 2020) and those with pets, will be forced into social housing which is already at breaking point; in Leicester alone, there are nearly 17’000 people waiting for social housing, of which there is only 8’000 social housing properties available in Leicester.

This rent increase only takes into consideration the deposit cap. It doesn’t take into consideration the tenant fee ban, our rising costs of operating costs, our landlord’s rising costs including the reduction in tax relief on mortgage interest payments and increased costs resulting from more stringent health and safety regulations and minimum energy efficiency standards. 

For us to recover our tenant fees of £125 per adult will mean two tenants moving into our property will be paying an extra £41.67pcm on top of the extra £26pcm (total: £47.67pcm before taking into consideration other costs) meaning tenants will be spending more in rent should they opt to remain in the property for a further 6 month period, in the case of our tenants, they’ll be paying double in extra rent if they remain in our property for one year (renewing for a second fixed term) than had they just paid our tenant fee.

Our previous correspondence with your department was met with an email response informing us that these measures will save tenants money. 

We, the RLA, the NLA, landlords across the nation, letting agents, property managers, property solicitors and local authorities are well aware that the opposite will be the case. How do you justify paying the same amount or more in extra rent over a prolonged period will save tenants money when rents are unlikely to fall once costs have been recovered?

How exactly have you arrived at the logic that, tenants paying more in rent to cover tenant fees, should they stay in the property for another fixed term, will save them money once the tenant fee ban comes in? We, and the rest of our industry, and the Private Rented Sector as a whole would really like to know; a clear detailed explanation is what we require, we’d also like to see the maths that demonstrates tenants will save money.

The proposal of minimum 3 year tenancies will be disastrous when we take the above into account. 

 

 

We want to cover risk as soon as we can, so going back to a 5 week deposit, disregarding any other costs, in Leicester, this will mean tenants pay £26 per month in increased rent for a property that would usually cost £700pcm. In 6 months’ time, at the end of the first initial period, that extra week’s deposit landlords will lose due to the deposit cap will be recovered (and won’t be returned to the tenant like a deposit would be if the tenant keeps the property in a tenant like manner); this means, at the end of the 3 year term, tenants will have paid a whopping £967.74 in rent rather than allowing landlords to collect the sixth week rent as deposit just because your department chose to cap deposits at 5 weeks instead of 6, much in spite of advice given to you from leading organisations within the sector you’re policies are having detrimental effects upon… For reference, the deposit on a property costing £700pcm is currently £967.74

Our math is as follows:

Rent: £700pcm

Fixed Term: 6 Months

Deposit: £967.74 (6 weeks) / £806.45 (5 weeks) | Difference: £161.29

Difference between 5 and 6 weeks deposit / fixed term = £161.29 / 6 = £26.88 per month in extra rent.

If the tenant moves out at the end of the 6-month period, they will have paid £161.29 in extra rent that won’t be repaid at the end of the tenancy like a deposit would be. This £161.29 goes into the landlord’s pocket less any costs.

If the tenant chooses to renew the term for a further 6 months, they will pay double this amount (£322.58). If they then renew for another 6 months (so they’re now living in the property for 1 and a half years), they will pay £483.87. When they’ve lived in the property for 2 years, they’ll have paid an extra £645.16 in rent that won’t be returned to the tenant like a deposit would be. 

A further 6 month term (2.5 years) will have cost a tenant an extra £806.45 and, should they take a final six month term, meaning they’ll have lived in the property for 3 years, tenants will have shelled out an extra £967.74 if they lived in Leicester in a property that would have cost £700 per calendar month to rent had the landlord taken a 6 weeks deposit.

Can you please justify to us how tenants paying an extra £967.74 over the course of living in a property for 3 years will save tenants money and how you justify, knowing this, capping deposits at 5 weeks?

I, along with the RLA, NLA and the rest of our sector, urge you to reconsider the deposit cap, the tenant fee ban and the reduction of incentives for landlords to provide housing, including reduction of and eventually complete abolition of tax relief on mortgage payments for the sake of our tenants and the most vulnerable tenants living in the private rented sector.

Your current plans will lead to financial hardship, increased homelessness and increased strain on the social housing sector. Tenants will be worse off, they will not save money.

(Note: For the avoidance of doubt, the attached rent increase notification is not real, however, if you were our tenant, rest assured you would find a letter landing on your doorstep this week notifying you of the upcoming rent increase as a result of the changes put forward by our government and that they should complain to their local MP if they’re unhappy with the measures taken by us and our landlord client’s to protect their assets and cover the cost of business and the cost of providing the services we provide to both tenants and landlords)

Yours sincerely, Andrew Hill, Harry Albert Lettings & Estates