Rental deposit system needs ‘tech reform’

Rental industry leaders call on government to incentivise uptake of alternative deposit systems.

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With more than £4bn of public money estimated as locked up in deposits across England and Wales alone, rental industry leaders call on government to incentivise the uptake of alternative deposit systems – and introduce an independent central clearing system for rental transactions.

The push for change pitched by leading trade bodies representing major landlords and agents includes:

  • Tax incentives to landlords who opt for alternative deposit solutions
  • Use of a central clearing system to manage all tenancy agreement transactions
  • An independent adjudicator who will preside over disputes between tenants and landlords

“The growing demand for deposit replacement services in the UK shows that a more equitable solution that affords landlords enhanced protection, while saving tenants money, is possible,” said Franz Doerr, co-founder and CEO of fintech payment platform flatfair, which manages more than 500,000 homes globally and Places for People.

The platform lets tenants secure their tenancy with just their debit card, as you would checking in to a hotel.

In exchange, tenants pay flatfair a one-off membership fee.

This is pitched as cutting down upfront moving costs, giving tenants a trust score they can take with them to unlock future discounts – with any deductions made upon exit transparent with flatfair fully integrated with the government-authorised deposit-protection provider mydeposits.

Doerr also highlighted that growing demand for the deposit replacement market in the UK shows how alternatives are available and provide a more equitable solution affording landlords enhanced protection, while saving tenants money.

“Instead of diverting resources into solutions that perpetuate the existing tenancy deposit model, government should promote the adoption of alternative tenancy deposit initiatives by incentivising landlords who opt for alternative deposit solutions, introducing clearing platforms for financial transactions,” he said.

An analysis of a random sample of nearly 15,000 lets showed that uptake in deposit alternatives has risen from 10% to 33% in the last year.

Renters in England and Wales shell out £1,110 on average for a deposit, according to the Tenancy Deposit Scheme and often have to pay twice over due to delays getting their previous deposit back.

Research by consumer group Which? found 43% of tenants who were planning to move to a new rental property had to use a credit card, loan, overdraft, or borrow cash from friends and family to pay for a deposit on their new home.

The study also found 16% of tenants who had moved out of a rental property in the past two years had to wait more than four weeks to get their deposit back, leaving a third to pay a new deposit before they had received their previous one back.

Responding to the government’s call for evidence on tenancy deposit reform, the British Property Federation (BPF) said in its written submission to the review that “fundamentally, landlords do not want to retain deposits and anything that helps landlords and tenants to work together to enable as much of the deposit to be returned to the tenant must be a positive move for both parties”.

BPF does acknowledge some signs of progress, however, saying: “Parts of the industry are already ahead of the curve in terms of new deposit initiatives.”

ARLA Propertymark, a regulatory body for UK letting agents, said in its written submission that “tenants find it difficult affording a second deposit when moving within the private rented sector”.

On the subject of increased legislation, however, ARLA’s advice was that “the government must recognise that investment in the private rented sector is falling, and this is a direct result of increasing levels of legislation that is putting even more pressure on the industry”.

The UK fintech company also highlighted that growing demand for the deposit replacement market in the UK shows how alternatives are available and provide a more equitable solution, affording landlords enhanced protection while saving tenants money.

An analysis of a random sample of nearly 15,000 lets showed that uptake in deposit alternatives has risen from 10% to 33% in the last year.

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