Everyone can benefit from new deposit scheme

THE Government’s publication of their White Paper for the Renter’s Reform Bill, which incorporates proposals to forbid Section 21 evictions and introduce ‘Lifetime Deposits’, has been suspended until 2022.

In this article, I want to look at how could the Lifetime Deposit Scheme works, and how could they benefit both landlords and tenants?

When a tenant moves between rented homes, they need the deposit for their new home before being released from their old home.

The average deposit for a Newbury rented home stands at £1,515.

Finding that amount of money at the time of moving can be difficult for many tenants, so they become stuck in their existing rental.

Westminster wants to propose in this White Paper a new deposit choice for tenants.

A deposit is transferred from the old landlord (letting agent) to the new landlord, thus making life simpler as the tenant doesn’t need to save for a new deposit every time they move.

Now, of course, it’s vital that any new ‘deposit scheme’ does not dissuade landlords from making valid claims for damage to properties.

Landlords cannot be expected to give up their right of recourse to a security deposit until such time that they are satisfied there will be no need to claim it.

So how would Lifetime Deposits work? There would need to be some form of system safeguarding that the new landlord is protected by a whole deposit.

This will be critical to landlords having conviction in the scheme and it could be something like an interest-free loan for the tenant on the crossover between the properties.

What about the existing system of deposits? The rules regarding the amount of deposit held by a landlord were changed a couple of years ago, where only five weeks worth of rent can be held as a deposit.

To give you an idea, the total of all the tenants’ deposits in Newbury is £4,225,335.

Yet the other side of the argument contends that if the tenant misses more than one month’s worth of rent, the landlord is immediately out of pocket, even before they’ve got the costs of solicitor and any improvement works from the tenant trashing the place.

The need for decent landlord insurance to ensure you are adequately covered as a Newbury landlord is vital.

It’s clear the standard cash down deposit will change in the future, possibly for the better.

Some landlords don’t require a deposit yet are compensated by asking the tenant to pay a higher rent to cover the risk.

Also, there are companies that offer insurance backed deposits where the tenant pays one week’s rent to an insurance firm, which pays out if a loss is incurred by the landlord.

Many will say the bigger issue isn’t ‘Lifetime Deposits’ in the White Paper, but the removal of no-fault Section 21 evictions.

I am not concerned about removing no-fault Section 21 evictions, but what will replace it to ensure there is suitable redress for landlords if the tenant doesn’t pay the rent?

Of course, a handful of landlords will decide to sell up because of the White Paper and this will reduce the supply of rental properties.

Yet the demand for rental properties will continue to grow in the next 30 years as we are still not building enough homes to accommodate our growing and ageing population.

This means new buy-to-let landlords will be attracted into the market. Isn’t it interesting that things mostly always go full circle?