Member Article

Government announces deposit-free renting study – calling them as “unreasonable” and “excessive”

More renting reform could be on the cards after the government announced a study into the benefits of deposit free renting – to be published within 6 months.

The government’s response to recommendations made in the Housing Communities and Local Government Select Committee’s examination of the draft Tenants Fees Bill, published alongside the final draft of the bill published last week, states:

“We have noted the Committee’s suggestion that Government should encourage innovation in the deposit free renting sector by assessing the merits of alternatives to traditional security deposits and reporting their findings to the Committee. Government will explore the merits of deposit alternatives and reply to the Committee within six months”

News of the study was welcomed by Ajay Jagota, founder of deposit free renting firm Dlighted and head of the #ditchthedeposit campaign, which encourages the government to promote alternatives to traditional tenancy deposits which allow renters to save for properties of their own.

An Impact Assessment of the forthcoming legislation gives an insight into the government’s current thinking, stating:

• “Deposits have become larger than necessary to provide sufficient security for landlords… tenants can therefore be required to pay unreasonable deposits which are incommensurate with landlord’s risk. Tenants have little bargaining power to influence this level of deposit which is further indication that the lettings market is not functioning in accordance with true market forces”.

• “The level of deposits requested can sometimes be excessive… (with) tenants paying substantial amounts of money upfront at the outset of a tenancy which can reduce affordability”

• Deposits “involve substantial amounts of money and make entering and moving within the private rented sector financially prohibitive”.

• The average tenancy deposit in the UK is now £1161 – an increase of 18.6% over five years.

• “Landlords are taking higher deposits because they are able to do so rather than to mitigate real financial risk”

• Deposits have a “significant impact on affordability for tenants… when this money could be much more efficiently used in the wider economy”.

• The Assessment also predicts that the new bill will cost landlords £82.9m, letting agents £157.1m and could lead to “the closure of letting agents and employment losses” and “potential higher rents”.

Ajay Jagota said:

“The deposit establishment was practically cracking open the champagne last week when the final draft of the Tenants Fees Bill left a system they profit from enormously at the expense of landlords and tenants largely intact, but this announcement shows more reform could be on the cards – and could be with us within months.

“The government’s thinking is clear – they’re coming around to the view that deposits are ‘unreasonable’ ‘excessive’ and make entering and moving within the private rented sector ‘financially prohibitive’. They don’t meaningfully ‘mitigate real financial risk’ and the money could be ‘better used in the wider economy’ – and I couldn’t have put it better myself.

“We’re talking about a system which sucks £4.2bn from our economy, makes renting unaffordable and costs landlords tenants without adequately protecting them against rent arrears and property damage. Intervention is needed to address these market failures, and it could be here by the end of the year.

“Even if this study doesn’t lead to new legislation the final Tenant’s Fees Bill still contains the provision for the Housing Minister to move the 6-week deposit cap whenever they feel like it – and there’s no reason to think that cap couldn’t be set at zero”.

Dlighted allows landlords, letting agents and tenants to let properties with zero deposit, using low cost deposit replacement insurance to protect property investors against damage, legal fees and unpaid rent.

#ditchthedeposit argues the government should support first time buyers to get a foot on the property ladder by transferring their rental deposits into Help to Buy savings schemes and by encourage the uptake of deposit free renting in the private rented sector.

This was posted in Bdaily's Members' News section by John Hart .