Is Scrapping Tenants’ Deposit Schemes Good For The Economy?

Since tenancy deposit protection legislation was introduced in 2007, millions of tenants have handed over billions of pounds to be protected through the schemes. The idea behind the legislation was to raise standards in the letting sector, as the deposit is regarded as the tenant’s money to be returned at the end of the contract unless anything had been damaged or the contract had been breached.

However, there are good reasons to reform the tenancy deposit schemes to free up this money to the benefit of the economy. It has been estimated that more than £3 billion is tied up in the scheme and, therefore, effectively frozen. The legislation means the money is sitting in accounts and earning little or no return. Instead, it could be freed up to stimulate investment in new-builds, which would go some way to alleviate the UK’s acute housing crisis. The government has pledged to build an average of 200,000 homes until 2020 and has made available a further £300 million in borrowing via the Housing Revenue Account – about one-tenth of the money sitting in deposit schemes.

If the scheme were abolished, this money could be freed up, which would boost the economy. Tenants would have extra funds to spend as they wished. The scheme does not help tenants, who have to find the first month’s rent plus a deposit of one to one and a half times their rent for the deposit. This could deter some people from moving around to look for work, simply because they do not have the spare cash to pay this money. This would mean they would have extra cash of between £901 and £1,352 for the average UK tenancy or between £1,572 and £2,358 for London tenants. Also about one in three private renters has less than £100 in the bank, according to University of Bristol research, so not having to pay this deposit would help them enormously.

One alternative, which is more efficient, is for buy-to-let investors to use landlord insurance as protection against any damage or non-payment of rent. The inventory report can stipulate that no deposit was handed over, along with the full list of items in the property and their condition to be signed by both parties. Photos could accompany the report so there is no dispute about the state of the property at check-out.