A tenancy deposit affordacility crisis is looming as new data reveals that nearly a third of renters are borrowing money to pay for them, new research shows.
The poll of 1,000 tenants reveals how they are using credit cards, personal loans, overdrafts and family loans to scrape together a deposit, which cannot exceed five weeks of rent, with a credit card being the most common option.
Based on the latest rent affordability figures, this means they are borrowing on average some £1,378 to fund the start of their tenancy, on top of the first month’s rent of £1,103.
‘Alternative deposit’ firm Reposit, which conducted the research, says many tenants turn to credit because they have yet to receive their previous deposit back from their landlord.
misconception
“There’s a common misconception within the industry that tenants who can’t afford a deposit of five weeks rent, can’t afford to take on a tenancy,” says CEO Ben Grech (pictured, below).
“But a tenant’s capability to produce a lump sum of five weeks rent is not a reliable indicator of their financial stability, or whether they can afford their monthly rent on an ongoing basis.
“As our survey shows, at least one third have turned to borrowing to fund a cash deposit.”
Reposit says its deposit alternatives product makes renting more affordable because they pay one week’s rent to secure their deposit with a landlord or letting agency, rather than five weeks’ rent, assuming they pass its stringent credit and affordability checks.
Earlier this year it was claimed that five weeks’ is often ‘not proving enough in many tenancy deposit disputes’.
The Government is keen that deposit alternatives like Reposit’s, which is one of several providers within the PRS, become more widely available, putting them on a more official footing within its recent How to Guide published earlier this year.
“We’re pleased to see the Government’s acknowledgement that deposit alternatives are an increasingly relevant part of the UK’s private rented sector,” adds Grech.
“Equally we support the message that tenants should check if the product they’re offered is FCA regulated.”
When using Reposit, tenants pay only one week’s rent (as a non-refundable fee) while offering landlords eight weeks protection instead of the usual five weeks rent free of charge.
Read more about deposit alternatives.
