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One month tenancy deposit cap is ‘just the first step’

With almost 5.8 million households expected to be living in private rented accommodation within four years as homeownership and social renting continue to fall, the amount of cash sitting in rental deposits is set to surge by around 40%, and that is despite government plans to cap tenant deposits to just one month, as announced in the Queen’s Speech, according to Ajay Jagota of deposit-free renting solution Dlighted.

With the average UK tenant currently needing to stump up £967 in tenancy deposits before being handed the keys to a new property, the tenancy deposit reform campaigner claims that the UK economy will be ‘deprived’ of around £5.8bn worth of rental deposits by 2021, reflecting predicted growth of around 24% in the number of households living in the Private Rented Sector.

Deposit reform campaigner, Jagota, described the figures as “the absolute scandal of wasting enough money to fill the funding gap in social care on literally nothing”.

The survey also shows that 37% of tenants now rent out of choice rather than necessity – with renters naming the flexibility and fewer responsibilities of renting as principle reasons for them not purchasing properties of their own.

The figures, commissioned by property firm Knight Frank, also reveal that 68% of renters still expect to be living in the rental sector in three years’ time.

Jagota said: “Tenancy deposits are a blatant economic inefficiency in serious need of government intervention, an intervention which could save almost six million renters an average of £1,000 by the time of the next election.

“The £3.5bn already is an eye-watering figure enough, but the £5.8bn it could rise to within five years is monstrous. With 97% of deposits unnecessary this is an absolute scandal.

“I’m not convinced a deposit cap [proposed by the government] goes anywhere far enough, but I believe the industry has to accept that this is just the first step.

“I predicted pre-election that tenancy deposit reform is now irrevocably on the agenda and even just this week deposit-free renting was proposed in an influential blog by leading property academic Professor Brian Sturgess.

“The tide is turning in favour of deposit-free renting, and those of us who have worked so hard to put reform on the agenda – even when it has not been a very popular attitude in our industry – are entitled to feel a little vindicated. 

“There are an infinite number of better ways all that money could be spent, and by abolishing out-dated tenancy deposit schemes with deposit-free renting and landlord insurance we can save renters a fortune while giving landlords better protection and boosting our economy or facilitating generation rent onto the housing ladder via transfer of funds into Help To Buy Isa’s.”

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    vested interest mr jagota?--i suggest 6 months advance rental!

  • Kristjan Byfield

    This is still predicated on having a tenant that spends all of that money (that they wouldn't otherwise have) leaving nothing in their bank account creating a high risk situation underpinned by reports of escalating household debt. I still don't understand this argument.

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    What if the tenant damages the property? How is the cost to carry out repairs recovered?

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    He wants to replace the deposit with landlord's insurance. And who's going to pay for that, I wonder? Because as a landlord, I can assure Mr Jagota that it won't be me.

  • Andrew McCausland

    Dear Mr Jagota,

    I note your stance on deposits but am unable to support your view.  Many of the properties we manage are occupied by tenants on a range of benefits and landlords would never be able to access insurance for them.  

    People often come to us with no job, no money for rent in advance, limited money for deposits, and no-one who can stand as guarantor for them.  This is not untypical for many areas outside London and the South East.  Despite this lack of cash they still need to be housed, and we do our best to help them into decent accommodation.  Most of these tenants act responsibly but quite a number do not.  

    We try and mitigate the risk by asking for direct payment of the housing element of Universal Credit (UC) to us rather than the money going to the tenant.  Even then, the landlords can sometimes take 6 to 8 weeks before they get their first rent payment.  

    If we do not get direct payment of UC our experience is that the level of rent arrears increases further.  You may say this is a failure on our part to chase rent arrears efficiently but it is an experience borne out by every other agent working in this sector, and by the RSL's now that they are no longer guaranteed direct payments either. 

    If the tenant's circumstances change during the tenancy (break up of a relationship, children leaving home / education / taken into care, deductions for Court fines, etc) the whole UC payment claim is stopped for reassessment and the landlords must wait again for payment to be reinstated.  We have 1 on our books now where the landlord has had no rent for 11 weeks because of changes by “the system”.  When can this ever be acceptable?  The landlord still has to pay his mortgage in the interim and is effectively subsidising the state.

    It is not unreasonable for landlords to take repossession action when debt levels rocket, but they get vilified by the press (and organisations like Shelter) when they do.

    Maybe in an ideal world the state would own all the housing and everybody could access a good home at a low and affordable rent.  Unfortunately, this is not how life is and the tax payer cannot afford to supply all the housing the country needs – hence the rise of the private rented sector.  Landlords will only continue to use their own money to house low income families if they can limit the risk, and they do this by taking deposits.

    Tenants with good jobs and a steady income, a good credit history and someone to act as guarantor probably should not have to pay a deposit.  If they came to us we could certainly organise this.  The insurers would gladly take their money knowing that the risk was minimal and it is, frankly, an easy profit for them.

    But what about the people at the bottom of the financial heap?  Who is going to offer them insurance?  

    So Mr Jagota, unless you can answer this question I will continue to take deposits.

    PS.  The first, and simplest step, to reduce risk to landlords and therefore reduce deposits would be to reintroduce direct payments of LHA and UC to landlords.  Over to the new housing minister for a quick and effective crowd pleaser?


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    The usual vested interest Jagota self-promotion article. 97% of deposits unnecessary?! Think official stats show only c.50% of deposits get returned to tenants in full, with the rest having a claim against them. How would that claim be settled? How high would premiums go if 50% of cases have claims?!!

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