Will Lifetime Deposits’ Change the Derby Rental Market Derby? Derby Deposits Total Over £16m!
The new Renter’s Reform Bill due in Spring 2022 could be the biggest change to the Derby Buy-To-Let property market in 30 years with the introduction of transferable ‘Lifetime Deposits’.
How will the Government ensure landlords aren’t out of pocket when a new tenant moves in and the deposit is claimed by their previous landlord?
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 Derby landlords and Derby 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 Derby rented home stands at £928.
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 property.
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 Derby 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 Derby landlord is protected by a whole deposit, even if the deposit on the old Derby home comes into dispute.
This will be critical and central to Derby 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 Derby landlord were changed a couple of years ago, where only five weeks’ worth of rent can be held as a deposit.
The deposits Derby tenants have had to save for certainly raises the cost of renting a Derby home. Some say this extra burden puts another nail in the coffin of the dream of homeownership for many Derby renters. To give you an idea of the level of deposits held for Derby rental properties…
The total of all the tenants’ deposits in Derby are £16,234,960.
Yet the other side of the argument contends that if the Derby 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 Derby 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 Derby is £3,850,582,432.
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 Derby landlord is vital.
So, what are our thoughts on ‘Lifetime Deposits’?
The common need for Derby tenants to stump up a ‘two-fold deposit’ is not helping many Derby renters when it comes to 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 even request 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, etc. - 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.
It's not the removal of no-fault Section 21 evictions that is concerning, it is what will replace them to ensure there is suitable redress for landlords if the tenant doesn't pay the rent?
Of course, a handful of Derby 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 Derby rental properties, meaning rents will rise and landlords rental returns 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 Derby will continue to grow in the next twenty to thirty years. The reason being is 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 30's.
This means new buy-to-let landlords will be attracted into the market, buy properties for the rental market in Derby and enjoy those higher yields and returns.
Isn't it interesting that things mostly always go full circle?