What is the future of deposits?
By Alex Timperley, 18 October 2018
It is fair to say that the current system of rental deposits is not working nominally for many tenants who are unable to move out of an unsuitable home thanks to the sums involved. The standard amount of six months’ rent on top of all the other costs of moving is simply too much for many people, and so they end up stuck.
The dissatisfaction with the current system was laid bare by a YouGov poll in September which revealed that almost half of all renters would prefer a lower cost insurance-based system instead of the current deposit schemes.
In addition, research from the Centre for Policy Studies shows that, by paying out that amount of money in one go, the average renter loses approximately £300 over the course of a tenancy due to inflation and lost interest – money which many can ill afford to lose. Add to that a recent study from Comparethemarket which shows a third of tenants do not believe that their landlord has placed their deposit in a compulsory deposit protection scheme, and an additional third of renters do not know what scheme their deposit is being held in, and it becomes clear that something needs to change.
In the face of this, a ‘no deposit’ alternative is becoming more popular. The proposed system would be based on insurance payments which would lower costs for tenants and cover landlords in the face of missed rental payments, maintenance costs and legal fees.
A scheme like this could serve to empower renters financially, removing the pressures that consumer group Which? says cause two in five renters to resort to credit cards, overdrafts or high risk loans to get together the money for a deposit. Without having to place themselves into unnecessary debt in order to move to a new home it is hoped that the lives of many people could be improved.
From the perspective of landlords, the aforementioned benefits of paying a smaller amount for insurance each month which covers potential larger costs is an easy win. In addition, if tenants are less financially burdened then finding the best, most reliable renters for your property will become much easier.
The current deposit system shows all the signs of being outdated and both landlords and tenants could benefit from introducing a simpler, more accessible system. As more and more people rent in the long term – including a growing number who have no intention of ever buying a home – then it will become increasingly urgent to make every aspect of the renting system work for everyone involved. The debate around deposits will shape a large part of that.
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