Lifetime deposits: Shaking up the system

    14 December 2020

    It's a year on from the Queen's speech outlining the Renter’s Reform Bill, including lifetime deposits. Here's an extract from our latest e-book, Your guide to lettings and the law, Vol II, to look at the sentiment around this deposit passporting concept.

    At the end of 2019, Prime Minister Boris Johnson said “The costs of deposits make it harder [for tenants] to move. We are going to fix that.” A solution was outlined in the Renter’s Reform Bill during the Queen’s Speech in December 2019 - lifetime deposits.

    The traditional deposit is currently set at a maximum of 5 or 6 week’s rent - an average of £1,260 in 2020 according to Goodlord's Rental Index - payable each time the tenant moves. A 2018 survey found that 43% of renters have to borrow money, whether through credit card or overdraft, or from family and friends, to cover the cost of moving into a property - with a third of tenants saying they had to pay a new security deposit before having their previous deposit returned.

    Lifetime deposits aim to shake this up. They will follow a tenant from property to property and the tenant will have to top it up if there were any cause for deductions - meaning that tenants will no longer need to save a deposit for each home move, freeing up cash flows and ultimately making it easier to move home.

    Calls for a system such as this had been made previously to “make renting cheaper and easier for tenants,” says David Smith, Residential Landlords Association Policy Director, who has “long argued that deposits should be transferable.”

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    He says that plans should “ensure that both landlords and tenants can have complete confidence in how the lifetime deposit will work.”

    Although the government has yet to set out specific details on how the scheme will work, the Tenancy Deposit Protection Reform Working Group was created to find ways to make the “passporting system” viable in the current market. Issues it highlighted include the need to find a system “to work with the different Government-approved providers of deposit protection” and “to be compatible with the two different [deposit protection] models: custodial and insurance-backed.”

    The working group also emphasised the need to find a solution for guaranteeing passported deposits, to help protect landlords. This issue is underlined by Franz Doerr, the Chief Executive of Flatfair, a deposit-free renting provider. He believes that passporting is “fundamentally flawed” and that “landlords are not properly protected by the system between tenancies, especially in cases where deductions are required or where there is a higher rent to be paid at the next property.”

    If the guarantee for landlords is not successfully implemented, Chris Toynbee, Director at Redmayne, Arnold & Harris, indicates a secondary sector-wide consequence. “The fluidity lifetime deposits would provide to tenants and the removal of the financial hurdles to ensure ease of movement is certainly a good focus for the market but this cannot come at a significant loss of security for landlords,” he says. “Landlords are under a huge amount of pressure, both regulatory and financial, and if this continues to build then we will see landlords leave the market, supply drop and rental prices increase.”

    As with the abolition of Section 21 under the Renter’s Reform Act, there’s no timescale set for when this concept will be enacted but ARLA Propertymark predicts it will be “a long way off.”

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