The Problem with Deposits

James Dwyer

James Dwyer

Business Analyst

In a largely unregulated market, deposits for rental properties keep on increasing at an alarming rate. London deposits are the highest they have ever been with the current average at £1,831.14. It is forecast that the average London deposit to be £2,733 by 2026, far outpacing wage growth. This makes the deposit equal to 120% of the expected average London monthly wages in 2026.

London First revealed that Greater London Authority along with Shelter are scheduled to formally reveal the details of the GLA’s Rental Deposit Loan Scheme on February 3rd. (as revealed here) This could potentially help London renters with the deposit issue, but it is still dependent on firms signing up for this and the cash flow hit that the firm would take in laying out all this cash as deposit loans.

As a tenant these concerns are not only the only issue, the other problem is the protection of my deposit. As deposits increase and become a larger percentage of monthly wage, the need to get your deposit back quickly will increase as well. Having moved between rented properties, we all know you never get your deposit back before you’re already in your new house and therefore have already paid your next deposit.

We have all heard from friends or personally experienced rogue landlords who not only don’t protect your deposit, but also try to charge extortionate damages on check out. They then view they will get the money as they don’t mind the slow process of going through mediation, but you do. This forces you to settle and accept that “it’s just part of the process.” It shouldn’t be.

Since 2007 deposits in England and Wales must be registered with a government approved protection scheme. Tenants can claim compensation of 1 to 3 times deposit value, if their landlord fails to do this. Yet, many landlords still don’t do it! In 2015 it was estimated that one third of the 1.5 million private landlords in England and Wales had still not registered with a deposit protection scheme. Clearly more needs to be done to deal with this, or some tenants will continue to play hostage to rogue landlords. As deposits become a greater share of tenant income, this increases the ease at which rogue landlords could squeeze more from the deposit than is truly fair. The tenant will be cash deficient, having just put down a large cash deposit for their new property, they will want to get their old deposit back as quickly as possible.

How the government finds and fines these landlords is the difficulty. If this information is so readily available, then how have they not been caught already? There is a housing ombudsman which is tasked with dealing with housing disputes and not directly aimed at sorting out unprotected deposits. Shelter have a great page which assesses what you can do, the process to follow and what you need (here)

However, this would only lead to another issue. Namely, most landlords don’t give all these details about them protecting your deposit and a tenant does not want to seem like they are inconveniencing their landlord – as you may need them to fix something, and if they already aren’t fond of you, this may not help.

If you have a rogue landlord, the Shelter guide will certainly help you. The issue facing the government is how to decrease the large number of landlords breaking these deposit laws. The penalty of one to three times deposit value is high, but for landlords to still be breaking the law given this penalty, but implies their lack of fear of being caught. Whether they can back date penalties to landlords i.e. penalise landlords for all their previous violations, or simply increase the size of this compensation payment, I don’t know which is the better policy. However, what remains clear is that something must be done to not only protect tenants, but give the much-needed enforcement of standards already rightly in place.