Nearly a third of tenants are borrowing money to fund a cash deposit, a survey claims.
A poll of 1,000 current renters reveals that 30 per cent are turning to friends and family, using credit cards, personal loans or arranging overdrafts to cover the costs of moving home.
The poll was carried out by deposit alternative service Reposit and it shows that 13 per cent of respondents are using credit cards, 14 per cent borrow from friends or family, eight per cent rely on overdrafts while a further six per cent use personal loans.
In some cases, renters are using multiple sources to scrape together enough for deposits.
Reposit chief executive Ben Grech says: “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. However, 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 a third have turned to borrowing to fund a cash deposit.”
With the average monthly rent now standing at £1,103.19 per month according to PropTech firm Goodlord, a cash deposit - usually of five weeks rent - now totals some £1,378.
Grech says specialist providers offering authoritative referencing and affordability checks can reassure agents of the appropriateness of tenants.
“As a minimum Reposit insists tenants pass a credit history check, identity verification and an affordability check to show their salary is at least 30 times the monthly rent. By choosing the option of a deposit alternative product - which requires one week’s rent instead of the usual five - tenants may avoid having to turn to lenders and therefore be in a better financial position when moving into a property, and actually reduce their risk of arrears” he claims.
For the first time deposit alternative products were included in the updated 'How to Rent' guide, published by the Department of Levelling Up, Housing and Communities in March.
"We’re pleased to see the government’s acknowledgement that deposit alternatives are an increasingly relevant part of the UK's private rented sector. Equally we support the message that tenants should check if the product they’re offered is regulated by the Financial Conduct Authority.”