Over the last few years or so, we have seen a popular new addition to the rental market- zero deposit schemes.
Back in the day, prior to The Tenant Fees Act 2019, landlords were allowed to determine the amount charged to their tenants as a deposit, whereas now, it is capped at 5 weeks rent, unless the rent is above £50,000 per annum, the landlord is entitled to charge 6 weeks rent.
Zero Deposit schemes are an alternative to the traditional tenancy deposit. Tenants no longer pay a deposit, instead, they pay a non-refundable fee of just one week’s rent to move into their new property.
In the last couple of years, several companies have been established as ‘deposit alternatives’ including Canopy, FlatFair and Reposit.
Saving for a deposit can be a burden to many Londoners lives. One month’s rent in advance, as well as the traditional five-week deposit, is a large sum of money to find. Not surprisingly, many tenants get into debt to simply afford a deposit on a rental property.
With the median monthly rent now standing at £725.00, according to the Office of National Statistics, a five-week deposit would be just over £840.00. For someone on the average annual income of £29,900 after tax, this would represent about a third of what they are paid each month. Many young renters will earn less than this. If tenants have to pay their first month's rent upfront, as well as the five-week deposit, this can quickly add up to the majority of a month's earnings.
Tenants would need to save up a large sum of money to place down prior to taking a property, and then often save the same amount again if they are wanting to move property, as in many cases, they don’t get their deposit back in time from the former landlord to pass it on to the new landlord and find themselves stuck in the same property.
There are numerous benefits of the zero deposit scheme, especially for young professionals whom are new to the rental market. Renting in London definitely doesn’t leave much money left in the savings, and erasing the upfront deposit removes one of the most prominent barriers in renting.
Firstly, the zero deposit scheme significantly decreases the upfront costs required to rent a property, which allows young professionals to get easily onto the rental ladder.
Removing the large upfront deposit payment can actually be beneficial for landlords. Firstly, by reducing the financial burden for new potential renters, it can help tenants move into properties faster, and in turn reduce the void periods for landlords.
Zero Deposits don’t mean that the landlord is no longer protected. While tenants no longer provide a pot of rainy day money at the start of their tenancy, landlords are still guaranteed the equivalent of six weeks rent security as opposed to the five-week limit of the traditional deposits.
There’s also an administrative burden with deposits, with the requirement to protect it in a registered deposit scheme within 30 days of receiving the deposit and details for this should provide back to the tenant within this window. Failure to protect this, can lead to the landlord having to pay back a fine of up to three times the value of the deposit.
Renting is a process which has to be beneficiary to both tenant and landlord, and with house prices increasing, and in turn-deposit prices increasing, there needs to be a balance.
Once a major barrier for renters, this may be the future of renting, making renting fast and simple for all.
