What Does the Tenancy Deposit Cap Mean for the PRS?

By | 24 July, 2017
The Conservative’s government’s Queen’s speech included a surprise or two. One for the private rental sector (PRS) was the introduction of tenancy deposit cap. In recent years, the Government has made many decisions that affect PRS landlords. Unfortunately, this latest one probably won’t be the last.
The Queens speech contained 27 bills. It passed through parliament by a slim majority of 323 to 309. Although new bills often take time to pass into law, the rent deposit cap could become official by Spring 2018.

Why Propose a Deposit Cap?

The Government has proposed a one-month rental deposit cap for the PRS. In the Queen’s speech, they said the reason for the cap is to make “the private rental market more affordable and competitive.”
However, there has been much debate in the short weeks since the speech, that suggest it may not work. One reason a deposit cap is unlikely to work as expected, is the reasons higher deposits are often used.
“Some landlords use a higher deposit to give them the extra confidence they need when letting to higher risk tenants,”said Richard Lambert, CEO at the National Landlords Association (NLA). “This could also have the unintended consequence of deterring them from offering their property to those… struggling with affordability.”
That’s right, contrary to common opinion, few landlords request high deposits to deprive tenants of their savings. Instead, many landlords request a higher deposit to help tenants with a less than perfect financial history. By requesting a higher deposit, of say two month’s rent, a landlord protects their investment against a higher risk tenant.
Pets are another reason for higher deposits. Few PRS properties accept pets. But, if a tenant is willing to pay a higher deposit to protect against pet-related wear-and-tear, it can encourage a landlord to say yes. The new cap will end these kinds of arrangements that work as a solution to issues that crop up.

Surely a Deposit Cap Will Help Renters?

If a tenant has a perfect financial record, no pets and a secure job, then yes. In those situations, a deposit cap will be acceptable all round.
However, figures show that less than half deposits are higher than one month, anyway. So, it’s unlikely to have as much of a positive impact as the Government might think.
In those cases, where higher deposits are standard, the cap will make renting a property more affordable at the outset. But, the deposit is only an initial payment. The rent is the most significant cost.
We’re not suggesting the Government should limit rents. No. What we do want to see, is a real increase in the number of new homes in the UK.
More homes will help lower rental and home-owner costs. It will also give tenants and home-buyers more choice over where they want to live. By sticking to those goals, the Government will find it easier to achieve more affordable housing. Not only on the PRS, but for home- buyers too.
If you want to know more about the tenancy deposit cap get in touch with us.

Alessio Tondo & Fabio Tarantino
Two ordinary guys who turned their passion into a business.
Co-Founded INCRENT
Rent 2 Rent specialists, London
Focused on how to Increase Your Rental Income.

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