What are lifetime deposits?

The growth in recent decades of the private rental housing market has been accompanied by calls for legislative reform in a number of areas.

The Government has responded by announcing plans for a package of measures including a system of “lifetime deposits”, which should make it easier for tenants to move between one property and the next.

So what are these, and how will they affect renters and landlords?

What are lifetime deposits?

Lifetime deposits are one element of the forthcoming Renters’ Reform Bill that was announced in the Queen’s Speech in December 2019 by the new Conservative Government.

Also called “deposit passporting” or “transferable rental deposits”, the new system will mean that renters will not have to save for a new deposit each time they move house. Instead, their deposit will simply be transferred from one property to the next.

Full details of how the scheme will work in practice have yet to be worked out.

Why are they a good thing for renters?

Up until now, many renters have found that they get stuck trying to raise money for a new deposit while waiting for their existing one back from their current landlord.

As an average five-week deposit is around £1,000, it’s understandable that many tenants find it hard to rustle up this kind of a sum. According to a Government survey, two-thirds of renters in England say they have no savings.

A Which? survey in 2018 found that 43% of tenants relied on overdrafts, credit cards, loans or borrowing from family or friends.

Those who have to rely on credit cards might then face hefty interest fees, making moving a very costly process.

What do they mean for landlords?

Many landlords have welcomed the idea of lifetime deposits but expressed concerns about the details.

David Smith, the Policy Director of the Residential Landlords Association, says: “We have long argued that deposits should be transferable. It will make renting cheaper and easier for tenants. It is vital though, that the detail of the plans ensure that both landlords and tenants can have complete confidence in how the lifetime deposit will work.”

One major query is what happens if a deposit cannot be simply transferred across as the previous landlord wants to make a deduction to cover the cost of damage caused by the outgoing tenant. 

The Association of Rental Letting Agents (ARLA), which was represented on the Government’s Tenancy Deposit Reform Working Group, says:  “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” it says.

ARLA has called for three safeguards to “help tackle or prevent negative behavioural changes in a passporting system. Firstly, a tenant guarantee. Secondly, a requirement to have an inventory. Thirdly, the requirement for a written tenancy agreement.”

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How should you legally handle your tenants' deposits?

The proposals would reform the current system, whereby landlords must place deposit money in a Tenancy Deposit Protect (TDP) scheme backed by the Government within 30 days of receiving it.

Each scheme offers landlords two options. The first is “custodial”, and means that the scheme holds the money for free. The second is “insured”, and means that the landlord or letting agent keeps the deposit, but pays the scheme to insure it.

When the tenancy ends, the landlord must repay the money within 10 days, providing the tenant has met the terms of the tenancy agreement, not damaged the property, and paid all rent and bills.

What other reforms is the Government planning?

Although details are still sketchy, the Renters’ Reform Bill outlined several plans to shake up the private rental sector.

It confirmed the Government’s intention to abolish Section 21 “no-fault” evictions, meaning that in most cases tenants will have the right to stay in a property unless they break the terms of their tenancy agreement.

This will be accompanied by reform of landlords’ rights to gain possession of their property, and improving the court process for doing so.

The Government has also recently announced plans to revise its model tenancy agreement to allow for “well-behaved pets” in rental properties.

Protect your properties with landlord insurance 

Regardless of the reforms to the private rental market, all landlords need to ensure their properties are fully protected with landlord insurance.

Stride is an independent broker specialising in the property sector. We can arrange for bespoke policies tailored to suit your portfolio and your budget.

Our landlord policies include as standard building and contents insurance, property owners’ liability cover, and protection against loss of rent following damage to your property. A wide range of additional cover is also available.

Whether you want cover for a single buy-to-let flat or a larger portfolio, talk to our team today. 

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Published: 4th March 2020 (Maddie Dean)
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