3rd
Jul 2017
The vast majority of agents and landlords will protect themselves against new tenants damaging the property, not paying rent and other breaches of a tenancy agreement when renting out a property by taking a deposit, thus allowing them to make the appropriate deductions when necessary.
In the Queen's Speech for the next two year's legislative agenda, it was mentioned that the government is proposing to cap the current amount of the tenancy deposit, equivalent to two month's rent, to just one month.
The CEO of an industry trade body, said: “The decision to cap tenancy deposits at no more than one month’s rent smacks of a political gesture from a government desperate to court the voters who supported their opponents at the last general election.
“We estimate that around 40% of deposits exceed one month’s rent. Whilst capping them may reduce the move-in costs for some, it will increase the temptation for others to view the deposit as the last month’s rent, leaving landlords out of pocket at the end of the tenancy if, for example, the property has been damaged.
“Some landlords use a higher deposit to give them the extra confidence they need when letting to higher risk tenants, so this could also have the unintended consequence of deterring them from offering their property to those likely to be struggling with affordability in the first place.”
There are three current tenancy deposit schemes which are government approved, DPS (Deposit Protection Service), My Deposits and the TDS (Tenancy Deposit Scheme) for landlords and agents in England and Wales for short hold assured tenancies. The custodial and insurance based schemes must be taken out by letting agents and landlords within thirty days of the tenancy agreement, it is common practise for the deposits to be taken before the tenants move into the property.
There are two types of scheme on offer, the Insured product allows agents and landlords to keep hold of the deposit throughout the tenancy period and are charged a protection fee. Under the custodial scheme the landlords or agents places the deposit with one of the three operators and are not charged a fee as the interest earned is kept in recompense.
It was also mentioned in the Queen's speech that the government is planning to restrict holding deposits which are taken out when a property that is available to be let is taken off the market, the amount will be capped to one week's rent.
The government will be holding consultations on both of the intended caps and will be scrutinised by the House of Commons and the House of Lords before the final bill appears.
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