Brokers have raised concerns about changes to the way estate agents will be regulated and questioned whether a local authority has the necessary clout to oversee the relationship between estate agents and in-house brokers.
In a draft order published earlier this month, the Government said it had decided to transfer the regulation of estate agents from the Office of Fair Trading to HMRC and the trading standards arm of Powys County Council.
The OFT is being disbanded on 1 April.
Announcing the draft order, parliamentary under-secretary of state for business, innovation and skills Jenny Willott said Powys County Council had been chosen following a robust tendering exercise in which every UK local authority was invited to bid. But the decision has come under fire from Labour and Co-operative MP for Walthamstow Stella Creasey.
During a parliamentary debate on the order, Creasey said: “There are real concerns [the housing market] is starting to act in a way that is not competitive, and that estate agents are undertaking unfair practices.”
Creasey cited the practice of agents requiring buyers to use their own in-house broker in order to be classed as a buyer of choice.
She added: “That is a massive conflict of interest. It is of real concern such practices are happening around the country and might grow, because of the benefits to estate agents from locking consumers into particular practices.
“Our fear is the proposals in the draft order will make it much harder to tackle.”
Creasey’s concerns echo the kind of poor sales practices uncovered by a Channel 4 Dispatches investigation in November, including recommending the use of buy-to-let loans for those unable to obtain residential loans.
Brokers say the transfer of regulatory powers will create an easier environment for estate agents to put customers under pressure.
Your Mortgage Decisions director Dominik Lipnicki says: “We have been calling for proper regulation of the estate agency sector for a long time. I am not convinced the OFT was a strong enough regulator.
“There have been so many scandals in this sector, yet these people can very often remain in business because there just is not sufficient regulation. If anything, these cases will become more prevalent because we have moved to looser regulation as opposed to tighter.”
Perception Finance managing director David Sheppard says: “Powys County Council and the tax inspector seem to be a very unusual home for any form of company regulation. Why disband the OFT, which is there specifically to ensure people are treated fairly, and move it to a county council?”
Trinity Financial product and communications manager Aaron Strutt says: “This is an interesting yet worrying move. With the mortgage industry so heavily regulated – and about to be increasingly so – many brokers feel estate agent practices need to be managed a lot better.”
Speaking to the Treasury select committee earlier this month, FCA chief executive Martin Wheatley said the regulator’s resources would be overstretched were it to assume authority over the estate agency sector.
At the hearing, Conservative MP Mark Garnier highlighted the significance of buying a home and asked if this meant the FCA should be responsible for regulating the industry.
Wheatley told MPs: “I do not think it should be. Partly because our resources are very stretched given the things we are doing. Also, we are the consumer champion for financial products but the purchase of a house is quite separate to taking out a mortgage, even though they are related.”
But brokers warn that the industry is far too important to the health of the economy to be left to a local council to regulate.
Lipnicki says: “I am certainly not one for overregulation but if the FCA is not going to take this sector on, there should certainly be a specialist regulator for estate agencies.
“It is such an important part of the economy I cannot understand how a local council in Wales can oversee the industry as a whole.
“What do they actually know about the industry? We would never consider IFAs or mortgage advisers to be regulated in such a way, so why are estate agencies any different. Has the sector not had enough bad press?”
Strutt adds: “Any county council is going to struggle to regulate this industry, I am not sure how the logic works. In an ideal world, the OFT would have been beefed up instead of scrapped to crack down on what is clearly a problem in a major industry.”
Sheppard says while the property market in the UK and particularly London is booming, estate agencies may not feel as much need to “squeeze every drop” out of each deal.
But he adds: “There are enough buyers out there right now, and estate agents are making a lot of money. They are keener on making hay while the sun shines but these problems will only be exacerbated when the market slows.
“They will continue to pressure borrowers towards their in-house services once more and it strikes me that Powys County Council may not be the best placed regulator to stem that flow.
“It is a very strange place for that power to go. Realistically, how much clout is Powys County Council going to have over a nationwide industry?”