Academic research suggests tenants in England and Wales are missing out on £80m of interest to tenancy deposit schemes every single year.
Figures obtained by no deposit alternative service Dlighted show that £4.2 billion of private tenants’ money is currently sitting in the three government-backed tenancy deposit schemes – but just two per cent of the tenants receive interest on that cash.
A report by University College London’s Dr Mike Seiferling estimates that if these deposits accrued interest at 2.5 per cent – the rate on Barclays’ Help to Buy ISA – renters would have an extra £82m in their pockets.
“Tenant deposits are tenants’ hard-earned money, yet the protection system appears to treat them like a cheap overdraft for the lettings industry. The system is ripe for change. This money is the closest many tenants have to savings so if it is tucked away for as long as they are renting, it should at least be earning them a decent return” Seiferling says.
The research also shows that of the £4 billion currently held in government-accredited tenancy deposit schemes, only £57m is required in cash at any one time – leaving a possible £3.96 billion which could be being invested: Dlighted says it could be used, for example, to create 35,000 new homes.
Ajay Jagota, managing director of Dlighted, says his firm allows tenants to rent for zero deposit by using low-cost deposit replacement insurance to provided their landlords and letting agents with £600,000 of protection against property damage, rent arrears and legal costs.
Jagota - who is also the head of the #ditchthedeposit campaign urging government to help renters use deposits to save for a property of their own - says of the new report: “We’ve been arguing for years that in the 97 per cent of cases when deposits are unnecessary, renters are still losing out.
“This is because changes in the cost of living mean that the value of the deposit they handed over will be inevitably lower than the value of the deposit they are handed back. At current rates of inflation, the average deposit is decreasing in value by close to three per cent a year.
“When Dr Seiferling states that deposits are the closest things many tenants have to savings, I couldn’t agree more. He’s 100 per cent correct, that that money shouldn’t be being used by businesses to make money, it should be being used to help the people who it belongs to onto the property ladder.”