With an increase in the number of people renting privately – it’s now the second largest form of tenure in the UK and the biggest in London – the desire for flexible renting and the ability to move easily between rental properties has inevitably increased.
Equally, the strict new rules imposed on deposits as part of the Tenant Fees Act – with security deposits now capped at no more than five weeks’ rent for annual rentals below £50,000 (and six weeks’ rent for anything higher than this), and holding deposits capped atone week’s rent – means the appeal of deposit-free renting is likely to have increased for landlords and letting agents who don’t wish to get caught out by the new regulations.
Here, we outline the main advantages of offering deposit-free renting to tenants, with research suggesting the desire for this type of renting is on the rise…
Tenants back alternative schemes
Deposit alternatives in the private rented sector such as deposit-free renting received a big boost earlier this year when research from Your Move revealed that half of the tenants polled in a sizeable 3,752-person survey would be interested in an alternative approach to traditional tenancy deposits.
Presently, the average rental deposit in England and Wales stands at £1,110, according to the Tenancy Deposit Scheme (TDS). In some parts of the country, though, a deposit can be significantly larger – in particular in London and the South East, as well as other prime tenant hot spots throughout the UK.
As such, the push for alternatives has gathered momentum in recent times, especially with more people now renting. And, even more than that, people renting for longer, which increases the chances of tenants living in more than one rental home and paying more than one deposit during their time in the PRS.
The survey found that more than half of respondents who were considered to be either ‘Budgeting Families’ (categorised as those aged between 25 and 44 years with children at home) or ‘Reconciled with Renting’ (those aged 45 or older and most likely to be renting due to a change in personal circumstances) were interested in alternative deposit schemes.
Meanwhile, some 70% of those who were polled said they would be influenced by the choice of such schemes when deciding to rent a specific property.
With approximately 4.7 million renters currently having to shell out an average of more than £1,000 every time they move to a new home, typically before they get their existing deposit back from their current landlord, many renters can struggle to pay this second deposit without receiving their first one back.
The Ministry of Housing, Communities and Local Government recently issued a call for evidence for tenancy reform – with deposit passporting, where tenants can transfer deposits between landlords when moving to a new rental home, being strongly mooted as one possible solution.
For others, though, a complete eradication of tenancy deposits is an even better fix. Some of the key benefits of this approach include:
- No more deposit disputes at the end of tenancies.
- No issues with adhering to the new legislation – included in the Tenant Fees Act – surrounding security and holding deposits being capped.
- Less financial pressure for tenants when moving home or renting for the first time,making renting a more desirable choice – good for keeping demand high for rental properties.
- No requirement to protect tenants’ deposits in a government-approved scheme, which is currently a legal must for all landlords and agents taking deposits from renters.
- Properties with deposit-free renting could attract greater interest from tenants, leading to quicker lets for landlords.
Making sure renting pays
At Canopy, we specialise in rent passports for tenants and tenancy deposit replacement. We recently raised £3.1m for ongoing expansion, as well as receiving further backing from our partners at Experian, the credit report giant.
To develop our initial offering, we are now offering a DepositFree insurance product, while a free-to-use RentTracking feature enables tenants to build credit by paying rent on-time – in turn reducing the prospect of rental arrears for your landlords by incentivising the right kind of behaviours from renters.
In a competitive market, particularly so post-fees ban, it’s important to standout from the crowd. Our deposit-free renting product – Canopy DepositFree – can help you to do exactly that. It enables tenants to buy an insurance policy at the start of their tenancy agreement instead of paying a deposit.
If the property is subsequently damaged, the insurer will pay for the repairs and ask the tenant to pay it back, rather than the landlord paying for the repairs from a tenant’s deposit.
Our insurance product enables your landlords to rent their homes faster with an alternative to cash deposits that offers the same protections.
Canopy founder Tahir Farooqui said of the recent new investment: “The capital we are raising will allow us to fulfil our vision of making renting work for everyone, initially addressing one of the core issues of the housing crisis –affordability. Canopy 2.0 takes it one step further for us by expanding our portfolio even more and takes us closer to our purpose of building an ecosystem of financial wellness for renters.”
In relation to deposit-free renting, he added: “Across the UK each year, renters pay over £54 billion in rent plus council tax, but until now that had barely factored in to any credit scores. What’s more, at any given time, about £4.5 billion of UK renters’ money is locked away in cash deposits, which is structurally inefficient. It’s a no-brainer for us to make a change to the industry and a privilege to build a rental platform aimed at having a positive social impact on the lives of millions of renters.”
You can find out more about what we offer letting agents by clicking here.