One of the provisions within the Renters’ Rights Act is for the introduction of ‘lifetime deposits’. Although the proposal is still in development, the government has expressed a desire to move forward with a system that will allow deposits to move between tenancies.
Currently, a tenant’s deposit is only released from the scheme in which it is held once the tenancy has ended. For custodial schemes, this is usually within 5 days, and with the insured schemes, landlords are expected to return the money within 10 days. However, if any deductions are proposed and there is disagreement over the amount, it could take significantly longer.
Meanwhile, if the tenant is moving to another rented property, they are usually expected to pay the deposit on the day they move in, if not before. That means that most tenants have to find the funds to bridge the gap between beginning their new tenancy and getting the deposit back from their previous tenancy, which could run into thousands of pounds.
So, to ease the financial pressure for tenants, the proposal is to introduce a ‘portable’ deposit system that would allow the funds to be moved from one tenancy to another, topped up by the tenant as needed – for example, if they moved to a more expensive property or part of the original deposit was deducted for damage.
There would also be some kind of financial bridging system to ensure that the new landlord had protection at the full deposit amount during the transition period, even if the previous deposit was in dispute.
Offering this kind of lifetime deposit facility would benefit landlords in two key ways:
- Tenants are likely to be attracted to a tenancy that doesn’t require them to fund two deposits at once.
- Because of the bridging guarantee, the transitions between tenancies should be smoother and quicker, reducing void periods.
Would the current deposit protection schemes disappear?
No, the plans are for this lifetime deposit system to be in addition to the existing custodial and insurance-based schemes.
When could lifetime deposits be introduced?
Although they sound like a good idea, it’s unlikely these portable lifetime deposits will appear in the near future. They were first proposed by the Conservative government in 2019 ahead of their original rental reform white paper but were not included in the first draft of the Renters (Reform) Bill and weren’t mentioned in the May 2022 Queen’s Speech.
Challenges that need to be overcome include:
- Ensuring the system is compatible with the current custodial and insurance-backed schemes.
- How varying deposit amounts will be tracked and managed as tenants move.
- Developing some kind of insurance product that gives robust financial protection to both landlords during the transition between tenancies.
For example, what would happen in the scenario where a tenant moves to a new home and begins a new tenancy while their previous deposit is in dispute, the scheme provider decides the entire deposit must be paid to the landlord, and the tenant cannot afford to immediately fund a whole new deposit?
While we await further information on this lifetime deposits proposition, it’s worth remembering that there is already a Zero Deposit Guarantee product that tenants can take out, which requires a much lower up-front financial commitment but offers the same protection to landlords as a six-week traditional deposit.
If you would like to discuss the benefits of offering Zero Deposits as an option, just get in touch with your local branch and one of the team will be very happy to talk it through.
The Your Move Content Marketing Team
