Westminster’s scheduled
publication of their White Paper for the Renter’s Reform Bill, which
incorporates proposals to forbid Section 21 evictions and introduce ‘Lifetime
Deposits’ in England, has been suspended until 2022.
The additional time is
required to give a chance to create a level playing field to reforms for both
landlords and tenants in the private rented sector in England.
In this article, I want to
look at these lifetime deposits.
Whilst any law change in
England would not automatically come to Wales, I think it’s important to
consider what is happening in England, in case our assembly decided to do the
same.
How could the Lifetime Deposit
Scheme work, and how could they benefit both Neath landlords and Neath tenants?
When a tenant moves between
rented homes, they need the deposit for their new home before being released
from their old home.
The average deposit for a Neath rented home stands at £735.
This means finding that
amount of money at the time of moving home can be difficult for many tenants;
thus, they become stuck in their existing rental.
Therefore, Westminster wants
to propose in this White Paper a new deposit choice for tenants. A deposit
is transferred from the old landlord (letting agent) to the new landlord
(letting agent), thus making life simpler as the tenant doesn’t need to save
for an additional new deposit every time they move home.
Now, of course, it’s vital
that any new ‘deposit scheme’ does not dissuade Neath landlords from making
valid claims for damage to properties. Landlords cannot be expected to give up
their right of recourse to a security deposit until such time that they are
satisfied there will be no need to claim it.
So how would Lifetime Deposits work?
There would need to be some
form of system safeguarding that the new Neath landlord is protected
by a whole deposit, even if the deposit on the old Neath home comes into
dispute.
This will be critical and
central to Neath landlords having conviction in the Lifetime Deposit Scheme.
That could be something like an interest-free loan for the tenant on the
crossover between the properties.
Another advantage to the
scheme is that ‘lifetime deposits’ could be used for tenants to build a deposit
for a house for the future.
What about the existing system of deposits?
The rules regarding the
amount of deposit held by a Neath landlord were changed a couple of years ago,
where only five weeks’ worth of rent can be held as a deposit.
The deposits Neath tenants
have had to save for certainly raises the cost of renting a Neath home.
Some say this extra burden puts
another nail in the coffin of the dream of homeownership for many Neath renters.
To give you an idea of the level of deposits held for Neath rental properties…
The total of all the tenants’ deposits in Neath is £1,739,745.
Yet the other side of the
argument contends that if the Neath tenant misses more than one month’s worth
of rent, the landlord is immediately out of pocket, even before they’ve got the
costs of solicitor and any improvement works from the tenant trashing the place.
Does a deposit of just over
one month provide Neath landlords with a decent level of protection against
unpaid rent or damage to the property? When you consider…
The total value of all the privately rented properties in Neath is £360,188,757.
Before I conclude my thoughts
to the initial question of ‘lifetime deposits’, the need for decent landlord
insurance to ensure you are adequately covered as a Neath landlord is vital.
So, what are my thoughts on ‘Lifetime Deposits’?
It is my opinion the common
need for Neath tenants to stump up a ‘two-fold deposit’ is not helping many Neath
renters when it comes to moving home. It’s clear the standard cash down deposit
is not fit for purpose for the 21st Century.
One might suggest the
Government’s quest for the ‘lifetime deposit’ could open the door to other
deposit alternatives that have come onto the market for tenants in the last few
years.
Some landlords don’t require
a deposit yet are compensated by asking the tenant to pay a higher rent to
cover the risk. Also, there are companies that offer insurance backed deposits
where the tenant pays one week’s rent to an insurance firm, and the insurance
firm pays out if a loss is incurred by the landlord.
Interestingly, other
countries are already offering deposit loans and guarantee schemes. Could this
be something for the British Government to contemplate?
We must wait until at least
the spring of 2022 for the Renter’s Reform White Paper to be published. Then
every stakeholder involved (tenants, landlords and agents, et cetera) can look
at it in the cold light of day and decide how this will affect the way they
view the landlord/tenant/agent relationship.
Many will say the bigger
issue isn’t ‘Lifetime Deposits’ in the White Paper, but the removal of no-fault
Section 21 evictions. The removal of Section 21 is something the current
Government have pledged to bring in during this parliamentary cycle (i.e.
before Q4 2024).
I am not concerned about
removing no-fault Section 21 evictions, but what will replace it to ensure
there is suitable redress for landlords if the tenant doesn’t pay the rent?
Of course, a handful of Neath
landlords will decide to sell their rental portfolio because of the White Paper.
The same happened in 2016 when the increase in landlord taxes were
announced.
However, this will reduce the supply and availability of
Neath rental properties, meaning rents will rise (classic textbook supply and
demand), thus, landlords return and yields will rise.
Yet, because tenants still
can’t afford to save the deposit for a home and we are all living longer, the
demand for rental properties across Neath will continue to grow in the next
twenty to thirty years. The reason being we are still not building enough homes
to accommodate our growing and ageing population. This means we will turn to more
European ways where the norm is to rent rather than buy in their 20s and 30’s.
This means new buy-to-let landlords will be attracted into the market, buy properties for the rental market in Neath and enjoy those higher yields and returns. Isn’t it interesting that things mostly always go full circle?
If you have any questions about the property market in South Wales, feel free to speak to our property experts today!
