With an average five-week deposit estimated at around £ 1,000, it’s no surprise that a 2018 Which? A survey found that 43% of tenants relied on overdrafts, credit cards, loans or borrowing from family or friends to cover relocation costs. The government wants to tackle this short-term affordability problem and put plans to introduce a new “lifetime deposit” into the 2019 tenant reform bill.
What is a lifetime deposit?
The idea behind a lifetime deposit, also known as a “deposit passport”, is that instead of the tenant having to find a new deposit each time they move home, their deposit will be transferred from one lease to another. This means that they will not have to save for a new deposit every time or provide a new deposit before the old one is returned.
How would a lifetime deposit work in practice? While the idea of this new policy is quite simple, how it will actually work is quite complex. The system works smoothly if there are no bookings at the end of the old lease, but, if there are, and especially if they are disputed by the tenant, it is not clear how things will be resolved or what will happen with the deposit.
So far, the government has not provided details on what it has planned, although it has set up a Working Group on Lease Deposit Reform to look at how to make this system more favorable in the current rental market.
“There have been suggestions that lifetime deposits could be a third-party process and that they could be covered by insurance. However, this has not yet been confirmed,” said Oli Sherlock, insurance director at Goodlord.
“If this is correct, I would imagine that the amount paid would be withheld in a similar way as now, the system would be covered by insurance, allowing fast payment to landlords. This leaves questions about how tenants’ liability is handled when moving from property to property, together with how to manage the increase in rents during the move “.
Chris Norris, director of policy and campaigns at the National Residential Landlords Association, addresses these concerns: of the first deposit. “
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A government white paper on rent is expected later this year, so more will need to be revealed later.
Meanwhile, the National Residential Landlords Association has proposed two possible schemes: the first is a financial bridging facility, according to which the new owner is covered by the full deposit, even if it is partly in dispute with an existing owner. This would be possible with a short-term, interest-free loan for the tenant.
The second is an ISA Deposit Builder, which works in a similar way to Help To Buy ISA and is a government-protected deposit container. Neither party would have access to the money unless it was ordered by an approved deposit plan or the account was closed.
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The benefits of a lifetime deposit for the tenant are clear: they only need to save for one deposit and do not have to wait for the old landlord to release the deposit before creating one for the new landlord.
“The disadvantage could be that there can be additional costs for the tenant to operate a project,” says Robert Burwood, rent manager at Hudsons Property. For owners, the scheme is advantageous, as they receive a deposit faster because they do not have to wait for an existing owner.
“One possible disadvantage is that the tenant may not have the same level of incentive to take care of their rental property if they find that their deposit is less risky than the proposed loss discounts,” notes Robert Burwood.
“The possibility of increased complexity and / or risk would be the biggest concern for most homeowners,” says Norris. He adds that the current deposit system, according to which a deposit is kept with an insured or custodian, has worked well for most owners: “A lifetime deposit would not offer many benefits. [for landlords] beyond potentially improving access for a wider range of tenants ”.
According to Burwood, it is possible that the current deposit system will coexist with the new lifetime deposits: “I see it as a choice for tenants and not a new mandatory requirement.”
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