Rental sector tenants' security deposits should be capped at five weeks' worth of rent as larger sums than this can cause financial difficulties for renters, a committee of MPs has urged.
The Housing, Communities and Local Government Committee made the comments in a report on the Government's draft Tenant Fees Bill.
The draft Bill, published in November 2017, aims to make renting in the private rented sector fairer and easier for tenants by introducing a ban on fees imposed on tenants by landlords and letting agents.
The committee said that with increasing numbers of people living in the private rented sector, it supports the aims of the draft Bill and broadly supports the proposed legislation.
The committee was asked to undertake scrutiny of the draft Bill ahead of its proposed passage through Parliament.
The draft Bill proposed prohibiting payments with the exception of rent, security deposits of up to six weeks' rent, holding deposits of up to one week's rent, and default fees.
But the committee's report recommends the maximum amount that can be charged as a security deposit should be lowered from the proposed six weeks' worth of rent.
It said security deposits should be capped at the equivalent of five weeks' rent in recognition that finding six weeks' worth of rent can cause financial difficulties for tenants.
By reducing the cap on security deposits, the private rented sector would become more affordable while also protecting landlords from rogue tenants, the committee argued.
The committee also said landlords should not be able to retain the full holding deposit if a tenant fails a reference check despite providing accurate information.
Landlords should only be allowed to retain the full holding deposit if the tenant knowingly provides false or misleading information, the committee said.
It also said additional funding should be made available to local authorities to enforce the legislation.
Clive Betts, who chairs the Housing, Communities and Local Government Committee, said: "With more and more people living in the private rented sector, this legislation has the potential to make a difference to millions of people by cracking down on unfair fees and saving tenants hundreds of pounds.
"We believe, however, that there are clear improvements that could be made to the Bill that would ensure it has a much better chance of delivering on its aim of making renting fairer and easier.
"Moving home is already an expensive time and many people struggle to find large sums of money at the start of their tenancies to put down as a deposit.
"Lowering the cap from six weeks' worth of rent to five will help make the private rented sector much more affordable, while also keeping protection for landlords from rogue tenants."
The Government estimates that the average household in the private rented sector will benefit by between £18 and £50 a year from the reforms, but the committee said it had heard that tenants could benefit by much more.
A Ministry of Housing, Communities and Local Government spokesman said: "We are determined to make renting fairer and increase protection for tenants.
"This important legislation will ensure that they are not hit with surprise fees or required to pay more than their rent and a refundable deposit.
"We welcome the HCLG committee report which we will review and respond to in due course."
David Cox, chief executive of letting agents' body Arla Propertymark said not allowing agents to retain the holding deposit when a tenant fails checks would be "both extremely unwise and very misguided".
He said: "This will result in agents only selecting the very best tenants to avoid the possibility of incurring costs through tenants failing referencing. Ultimately, this will reduce the availability of property for vulnerable tenants and families."
Greg Beales, director of policy and campaigns at Shelter, said the fee ban was "wildly popular with renters, which is why it's so important that it does exactly what it says on the tin by completely scrapping rip-off letting agent fees.
"It's good to see the ban moving forward, but today's proposals would leave the back door open for agents to continue charging tenants in different ways and let down the renters it was supposed to help."
Councillor Martin Tett, the Local Government Association's housing spokesman, said: "A thriving private rented sector contributes to a balanced mix of affordable housing in communities, and we know that with the right measures, that can be delivered but only if councils are adequately resourced to ensure their residents are fully protected."