New protection for tenants from unfair charges

The amount landlords can charge as a deposit will be capped from next month to protect tenants from having to fork out thousands of pounds to secure a property.

Under the Tenant Fees Act, which comes into force in England on 1st June, there will not only be limits on deposits, but various other fees will be banned. The fees ban will apply in Wales from September.

Here’s what you need to know.

How much will the new maximum deposit be?

Where the annual rent of a property is below £50,000, landlords must limit deposits to a maximum of five weeks’ rent. If the annual rent is above £50,000, a deposit of six weeks’ rent can be charged.

The Tenancy Deposit scheme has launched a useful deposit cap calculator to help landlords ensure they get the deposit amount right. Those who breach the cap risk an initial fine of up to £5,000.

Will there be a limit on holding deposits?

A holding deposit is a sum of money paid to a landlord or letting agent to reserve a rental property before they sign a tenancy agreement.

Under the Tenant Fees Act, holding deposits will be limited to a maximum of one week’s rent and must be repaid to the tenant if the tenancy doesn’t go ahead. However, it doesn’t have to be repaid in full if it’s the tenant who backs out of the agreement, or if they fail checks or provide misleading information.

Once a holding deposit is taken, landlords have 15 days to make a decision and if the tenancy doesn’t proceed the holding deposit must be paid back within 7 days of this deadline being reached.

Will there be any restrictions on rent?

Landlords won’t be able to set rent at a higher level for the first part of the tenancy agreement and then reduce it afterwards. For example, they cannot charge more in month one and drop the rent in month two.

They can charge a higher rent than they would normally charge if they want to, provided it is consistent throughout the tenancy.

Which fees will be banned?

The Act bans various fees, including fees for credit checks, references, inventories, cleaning services and admin charges.

Charges that are exempt from the banned list include holding deposits, rent, deposits and charges for defaulting on the rental contract.

What will the impact be on landlords?

Whilst new rules are good news for tenants, there are concerns that they could push some landlords to sell, as agents may increase their own fees to recoup lost income.

There are also fears that the introduction of the Act could see rents increase as landlords try to avoid taking a financial hit.

However, some commentators think it’s unlikely that rents will rise substantially, as landlords will be keen to remain competitive to attract tenants.