It is widely accepted that tenants, especially in London, are facing an affordability crisis when it comes to renting.
A lot of focus in on tenancy fees but the tenancy deposit is also an area of concern. Landlords perfectly reasonably ask for tenants to pay money to secure their interest in the property and to give the landlord something to deduct from if things go badly.
However, the problem for many tenants is that they actually have to raise the deposit twice. One deposit is tied up in the property they are leaving while the another similar sum is needed for the property they wish to move in to.
This expense leads to tenants not paying the last month’s rent in the property they are leaving or borrowing from high interest, “pay day lenders”. Neither situation is good for the tenant or their landlord.
It would be much easier if a tenants deposit could somehow follow them from property to property with the tenant making up any shortfall caused by deductions.
This is precisely what the RLA is calling for at this election.
We propose that the existing tenancy deposit schemes, which are well recognised and broadly trusted by landlords and tenants should be asked to offer a new type of product.
This would be similar to the existing custodial deposit schemes so the deposit would be held by the scheme itself. This money held by the schemes would not receive interest and this would enable the schemes to partially fund themselves to keep costs low.
At the end of each tenancy the tenant, if they were moving to a new tenancy, would provide the new landlord with a certificate from the scheme of the deposit they were holding.
If that was acceptable to the new landlord it would continue to be held, otherwise the tenant would deposit more money with the scheme.
The tenant would also buy a low cost insurance policy to cover any deductions from their deposit.
At the end of the first tenancy deductions would be dealt with as they are now, with the scheme adjudicating any disputes and the tenant would be asked to make up the difference.
If they failed to do so the insurance policy the tenant had bought would be used to make up the sum so that the new landlord would not be left without the security of the deposit they had expected.
The scheme could then pursue the tenant for the money and could recover it by staged payments by agreement.
Potentially the scheme could also allow tenants to save more into their deposit account allowing them to save a deposit for a larger or more expensive property or even save money towards a deposit on a home to purchase.
By having a longer term financial relationship tenants would also have a mechanism which could be used to give them a score for credit worthiness allowing them better access to financial services.
The RLA acknowledges that tenants face substantial costs in the housing market, especially when they move property. That is why it is calling for a new deposit model which continues to offer landlords security while at the same time giving tenants a break from the need to always have an extra tenancy deposit for their next home.