The Government’s scheduled 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.
The additional time is required to give a chance to create a level playing field to reforms for both landlords and tenants in the private rented sector in England.
In this article, I want to look at these lifetime deposits. How could the Lifetime Deposit Scheme work, and how could they benefit both Low Fell 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 Low Fell rented
home stands at £699.
This means finding that amount of money at the time of moving home can be difficult for many tenants; thus, they become stuck in their existing rental.
Therefore, 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 (letting agent), thus making life simpler as the tenant doesn't need to save for an additional new deposit every time they move home.
Now, of course, it's vital that any new ‘deposit scheme’ does not dissuade Low Fell 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 Low Fell landlord is protected by a whole deposit, even if the deposit on the old Low Fell home comes into dispute.
This will be critical and central to Low Fell landlords having conviction in the Lifetime Deposit Scheme. That could be something like an interest-free loan for the tenant on the crossover between the properties.
Another advantage to the scheme is that ‘lifetime deposits’ could be used for tenants to build a deposit for a house for the future.
What about the existing system of deposits?
The rules regarding the amount of deposit held by a Low Fell landlord were changed a couple of years ago, where only five weeks’ worth of rent can be held as a deposit.
The deposits Low Fell tenants have had to save for certainly raises the cost of renting a home.
Some say this extra burden puts another nail in the coffin of the dream of homeownership for many Low Fell renters. To give you an idea of the level of deposits held for Low Fell rental properties …
The total of all the tenants’
deposits in Low Fell is £862,258.
Yet the other side of the argument contends that if the Low Fell 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 solicitors and any improvement works from the tenant trashing the place.
Does a deposit of just over one month provide Low Fell landlords with a decent level of protection against unpaid rent or damage to the property? When you consider …
The total value of all the privately rented properties
in Low Fell is £279,608,358.
Before I conclude my thoughts to the initial question of ‘lifetime deposits’, the need for decent landlord insurance to ensure you are adequately covered as a Low Fell landlord is vital.
So, what are my thoughts on ‘Lifetime Deposits’?
It is my opinion the common need for Low Fell tenants to stump up a ‘two-fold deposit’ is not helping many Low Fell renters when moving home. It’s clear the standard cash down deposit is not fit for purpose for the 21st Century.
One might suggest the Government’s quest for the ‘lifetime deposit’ could open the door to other deposit alternatives that have come onto the market for tenants in the last few years.
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, and the insurance firm pays out if a loss is incurred by the landlord.
Interestingly, other countries are already offering deposit loans and guarantee schemes. Could this be something for the British Government to contemplate?
We must wait until at least the spring of 2022 for the Renter’s Reform White Paper to be published. Then every stakeholder involved (tenants, landlords and agents, et cetera) can look at it in the cold light of day and decide how this will affect the way they view the landlord/tenant/agent relationship.
Many will say the bigger issue isn’t ‘Lifetime Deposits’ in the White Paper, but the removal of no-fault Section 21 evictions. The removal of Section 21 is something the current Government have pledged to bring in during this parliamentary cycle (i.e. before Q4 2024).
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 Low Fell landlords will decide to sell their rental portfolio because of the White Paper. The same happened in 2016 when the increase in landlord taxes were announced.
However, this will reduce the supply and availability of Low Fell rental properties, meaning rents will rise (classic textbook supply and demand), thus, landlords return and yields will rise.
Yet, because tenants still can’t afford to save the deposit for a home and we are all living longer, the demand for rental properties across Low Fell will continue to grow in the next twenty to thirty years. The reason being we are still not building enough homes to accommodate our growing and ageing population. This means we will turn to more European ways where the norm is to rent rather than buy in their 20s and 30s.
This means new buy-to-let landlords will be attracted into the market, buy properties for the rental market in Low Fell and enjoy those higher yields and returns. Isn't it interesting that things mostly always go full circle?