Lifetime deposits – how will they work in reality?

Lifetime deposits – how will they work in reality?

18 January 2022

One of the main components of the Government’s long-awaited planned rental reform is the introduction of lifetime deposits to make it easier and cheaper for tenants to move between tenancies.

But what is the background, what are the potential issues and how could this new system work in reality?

Years in the making

The concept of lifetime deposits was first mooted in the Conservative manifesto for the December 2019 election, well over two years ago now. Along with a pledge to end Section 21 evictions, the document also included a proposal for lifetime deposits that travel with the tenant from tenancy to tenancy. Doing so would prevent the current situation where tenants often have to pay a new deposit before receiving their previous one back in full – leaving many in a potentially financially compromised position.

The pledge was reconfirmed in the Queen’s Speech of that year, once the Tories had won their 80 seat-plus majority, and has since featured prominently in any talk surrounding rental reform.

The idea of lifetime deposits is wrapped up with the Renters’ Reform Bill, which itself is reliant on the delayed White Paper on Rental Reform – expected at some point this year. Once the White Paper has been released, pored over and discussed, it’s likely to inform the final look of the Bill before it heads to the Houses of Parliament. With parliamentary time remaining at a premium thanks, there are no guarantees that the Bill will be brought before Parliament this year – let alone making it through both houses. The timeframe for rental reform will only become more apparent once the White Paper has been released – which could be any time from early to late 2022, with the Government remaining coy on an exact date.

What are the potential problems?

Some have raised concerns about the practicalities of a lifetime deposit system. There are worries that varying deposit amounts could present an issue – if a tenant’s new property requires a greater deposit than their previous one, they will need an easy way to add to it. Overlaps and gaps between tenancies pose another issue. If a new tenancy begins before the previous one has ended, a tenant either needs to pay a separate deposit or have one deposit covering two active tenancies. Deductions and deduction disputes could also cause an issue and tie up deposits, meaning they can’t be used for a new tenancy.

The need would appear to be there for a new system, though, as one of the biggest obstacles facing tenants is the size of the deposit they need to move home – which, despite the introduction of the Tenant Fees Act and caps on deposits, can still be prohibitive.

According to the Office for National Statistics, the current average tenancy deposit is £1,054. This needs to be paid before moving into a new home, often before the tenant has received their deposit back from their previous tenancy. In many cases, this makes it difficult or unaffordable for many tenants to move home easily.

With the rental market thriving on flexibility and transient renters, there are potential advantages to landlords and agents from a smoother, more seamless system, where tenants – particularly the students and young professionals who make up a large part of the market – can move around more affordably.

That said, there will remain doubts and concerns about how the system will work in practice. How will the lifetime deposits be tracked? Will this need to be done online, through a central database, in a similar way to the revised Right to Rent checks?

These questions will need to be answered by Government when they eventually put forward their plans for lifetime deposits, and some of these matters are likely to be discussed in the upcoming White Paper. Lifetime deposits seem almost sure to come in at some point, but when that is – and how they will operate – remains clouded in a fair bit of uncertainty.

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