What are Lifetime Deposits?
Lifetime deposits encompass a revolutionised system, first proposed in the Renters Reform Bill back in 2019, that removes the obligations upon renters to save up for a deposit on a property each time they move. Instead, the deposit on their current property can simply be transferred to the next, lifting the heavy financial burden of many tenants and essentially creating a 'deposit passport'.
These deposit passports were first announced in the Conservative manifesto Queens Speech of December 2019 wherein the new Conservative government proposed the revolutionary Renters Reform Bill at the time. In hand with the intended abolishment of Section 21, lifetime deposits conceptually allow tenants to easily cover a deposit on a new property with their existing one without having to wait for their current landlord to return it to them.
However, we are yet to hear more details about the fruition of this new proposal and the logistics in practice behind it.
How does the current deposit system work?
At the moment, landlords usually request a five-week security deposit before the tenancy begins acting as a protection against the tenant if the property is damaged or in the event of defaulted payments.
The main problem with this system is that, if and when a tenant wants to move to a new rental property they are most likely not going to receive their original deposit before they have to pay the deposit on the new property. However the Tenancy Deposit Protection Working Group expressed their concerns over how much of a problem this poses to tenants. Whilst it can take time to build up the money for the original deposit, it is likely you'll get it back. Obviously this depends on your faith in the system and that deposit disputes won't lass too long after vacating the property.
The question is, are lifetime deposits trying to fix a problem that isn’t really there and simultaneously causing more complications?
What are the current deposit alternatives available in the UK?
The potential issue of affordability has created an emergence of a number of solutions that somewhat complement the current system. One of these are deposit replacement services that allow tenants to pay a fee which usually works out to be one week's rent, instead of the traditional refundable 5-week deposit upfront. However, under this the tenant is still held liable for any damage caused to the property.
These schemes are still relatively new and haven't been utilised in the mainstream market at all.
So, how will Lifetime Deposits actually help Renters?
Renting is tough and expensive. With the rental market as hot as ever alongside the cost of living crisis and the energy bill surge, most of the country faces the harsh reality of not having the same amount of cash or savings as before.
With government surveys reporting that 2/3s of tenants in England have no savings and mainly rely on loans, overdraft, credit cards or borrowing from family and friends, attempting to scrape together a deposit for a property is tough for most. The average 5-week deposit sits at £1000, which is a substantial amount of money for a lot of people to pay on top of all the moving fees, furnishings, bills and everything else that makes the whole affair costly. Renters can save for months to gather enough money for a deposit whilst Landlords have been known to take months to return it.
With the introduction of life time deposits, financial stress is somewhat quelled when moving. Instead, according to what we know of the proposal, renters' deposits could automatically be transferred to their new property.
There has been considerations that Lifetime Deposits could act as a “variation on an insurance product”, first put forward by Conservative delegates back in 2019. This would allow tenants access to the deposit held by the landlord, but the landlord ultimately decides how much to retain when the tenancy concludes.
Will this negatively impact Landlords?
The general consensus of landlords seems positive surrounding the proposal, however, with the details and functionality of the new system yet to be shared, Landlords are left with concern and worry about what the proposal would mean in practice.
Some have expressed the importance of ensuring that although the automatic transfer seemingly makes life a lot easier and smoother for tenants, the government must ensure that in practice landlords will not be losing out in any way.
The new proposal, landlords pose, must take this into account and provide landlords fair methods to regain compensation they are owed when deposits are transferred automatically. ARLA expressed,
If the introduction of a passporting system is to be viable the Government must ensure that both the outgoing landlord’s deposit can be used if needed, whilst the incoming landlord has certainty, they will get the full deposit they have agreed with the tenant
How problematic would the new process be?
A concern that has been raised with lifetime deposits surrounds differing deposit amounts in an existing property versus the new property. How would the system effectively allow tenants to add money to their deposit or withdraw money?
Overlapping or even gaps between tenancies could also cause an operational headache, potentially confusing when deposits need to be transferred or if the one deposit can be valid for two properties. Deductions could also become problematic when the deposit is being used for another property. Landlords would need assurance of the protection of their property where there has been damage or a default in rent.
One way that Landlords can ensure they get paid the full amount of their rent owed to them in the case of default is by using Homeppl Guarantid - a rental income protection product that can cover rent from £1 per tenant AND promises to pay back landlords the same day that the tenant defaults.
The Tenancy Deposit Protection Working Group identified a further number of concerns that would need to be addressed if the proposal came to fruition. Tenant behaviour is a particular area of concern due to how unpredictable it can be when discerning a tenant's propensity to look after the property.
However, people in cities, as well as students and young professionals tend to move a lot, sometimes every year. Meaning there is a financial burden that the current system comes with to save that deposit regularly.
