Long experience of working with the vulnerable has proved that providing a cash deposit is often a major headache for prospective tenants. It is easy to be critical of people who seem to make no preparation for moving into their own home, but living on a limited income often leaves little left over to save for a tenancy.
The issue with deposits has been exacerbated in London, where rents are extremely high; there is also the issue of the deposit for the last property perhaps not being returned until a week or more after the new tenancy has commenced, thereby requiring that the new cash deposit be paid whilst the old deposit is outstanding – a considerable sum for the low-paid or those in a high rent area.
There have recently been many schemes devised to assist where the full cash deposit, usually 4 or 6 weeks, is difficult to come by. Google searches will come up with a list from which prospective tenants, and landlords, can decide which one is the best for individual tenants or meets the landlords needs best.
Reposit and Zero Deposit Scheme operate an insurance scheme. Rather than paying 4 or 6 weeks cash deposit, the tenant pays for insurance at perhaps 1 weeks rent. If the rent is £250 per week, a cash deposit would be expected of £1,000 or £1,500 deposit; under an insurance scheme, they would pay one weeks rent (£250) to purchase an insurance policy.
It is easy to see why tenants would approve of this and landlords surely cannot lose. The policy would cover them for the amount of the larger deposit, so no losers there.
But there are. A cash deposit not only gives the landlord something to claim if the tenant leaves with rent arrears or damages to the property, it also carries weight with the tenant, as the loss of the deposit at the end of the tenancy is a real penalty and hopefully, serves as an encouragement to tenants to pay the rent and keep the property in good order. The other aspect is the confidence that it gives a landlord, to find a tenant who has made preparation for entering the private sector and is prepared to pay a deposit.
An alternative to an insurance scheme is proposed by The Depository, which has not yet been launched but has partnered with Tenancy Deposit Scheme, the largest of the tenancy deposit protection schemes. This connection with the largest Tenancy Deposit Scheme may give landlords and agents confidence that it would assist the tenants.
Certainly, where a deposit has been paid and protected, it may therefore be a far more straightforward procedure to automatically transfer the deposit to safeguard the next property, so only one deposit is required at any one time. However, decisions from the Dispute Resolution Service, where there is no agreement between landlord and tenant about the return, or non-return, of the deposit, have proved questionable to say the least.
For example, a perfectly serviceable appliance is left in the garden, because the tenant wants her own item. After a year or more of this, the appliance cannot be returned to its’ original position. The landlord made a claim and was allowed a fraction of the cost because of ‘wear and tear’. Would landlords feel happy that, with this kind of decision, they are receiving fair treatment?
Landlords will need to feel confident that they are getting the best cover they can to safe-guard their properties. For many, many years, a cash deposit gave landlords that certainty. Whatever may be said now about its’ efficacy and the difficulties it poses for prospective tenants, it is still the soundest basis on which a landlord can make a decision about a tenant. It is not fool-proof, but is at least as effective as the no deposit schemes will prove to be.
For advice on buy to let issues – Ask Sharon