Deposit campaigner, Ajay Jagota, warns mandatory Client Protection Money premiums could "rapidly become astronomical" as agents face bankruptcy.
"We've seen how often agents in financial difficulty misappropriate deposits to prop up their failing businesses, and here's the government admitting that more agents are likely to end up in financial difficulty as a result of the ban. It's obvious what's going to happen".
In its response to a consultation on the Mandatory Client Money Protection Schemes for Property Agents, the Ministry of Housing, Communities and Local Government admits:
“The intention is for mandatory CMP to come into force before the ban on tenant fees. This is to ensure that consumers are protected and that client money is not lost in the instance of any agent going out of business as a result of the ban”
Client Protection Money schemes compensate landlords or tenants owed money by their agents, and are set to become mandatory for property agents in England within weeks.
Under the plans agents found to be handling client money without CMP will receive fines of up to £30,000.
The revelation came the same week as a report from a committee of MPs examining the government’s Tenant Fee Bill described tenancy deposits as a “significant financial challenge” to renters.
Recommending that the proposed tenancy deposit cap be lowered from six weeks to five, the House of Commons Housing, Communities and Local Government Committee states:
“Finding six weeks’ worth of rent can cause financial difficulties for tenants. Tenants are required to find large sums of money at the start of a tenancy which can pose a significant financial challenge”
Ajay Jagota, founder of deposit free renting firm Dlighted, said: “It’s quite startlingly that an supposedly pro-business government would so flippantly admit that a piece of legislation it is in the process of bringing in is literally going to bankrupt people.
Letting agents need to hear this warning and consider what steps they can take to reduce their overheads and to maximise their income in a post-fee world. And as far as I’m concerned the answer is deposit free renting. We've seen how often agents in financial difficulty misappropriate deposits to prop up their business, and here's the government admitting that more agents are likely to end up in financial difficulty as a result of the ban. It's obvious what's going to happen.
Mandatory client money protection is another financial burden for small businesses, and if more and more agents go bust as a result of the fee ban or end up mis-using deposits money to bail themselves out the premiums the industry will face could rapidly become astronomical.
I welcome the select committee’s acknowledgement that deposits pose are a significant financial challenge to renters, and landlords and letting agents also need to consider how they in turn create a challenge for them when it comes to finding and keeping good tenants. Another interesting thing to come out of the consultation is that 77% of respondents – almost half of whom were letting agents – believe CMP policies must be purchased from a Financial Conduct Authority approved provider.
These agents will already be putting client money in the form of deposits into one of the three government-backed tenancy deposit schemes, none of which are FCA backed”.
