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Revealed - what is the Lifetime Deposit Scheme?

  1. 26 May 2021
  2. By Jeremy Greer

A closer look at the Government’s proposed lifetime deposit scheme, which forms part of its controversial Renters’ Reform Bill, set to be introduced in the coming Parliament.


As part of its 2019 election manifesto, the Conservatives promised a better deal for renters, which would include the scrapping of Section 21 eviction notices and the introduction of lifetime deposits, among other things.

Since then, the progress of the proposed Renters’ Reform Bill has been stalled by coronavirus and was said to be on hold until a point when a more stable environment was in play again.

However, in the recent Queen’s Speech, the prospect of widespread rental reform was mooted again and is set to be implemented in the coming year.

What was announced?

The Government made clear in its latest Queen’s Speech that rental reform will be a priority in the current session of Parliament. During her speech, the Queen made a brief reference to the commitment for rental reform when she opened the latest parliamentary session, with Her Majesty saying that her Government would help more people to own their own home while ‘enhancing the rights of those who rent’.

Despite the Renters’ Reform Bill not being explicitly referred to, it’s been suggested in advance by the Government that this Bill will be the main vehicle for reform. Autumn is expected to see the publication of a White Paper, before formal legislation starts its route through the Commons and Lords.

The Bill is anticipated to abolish controversial, so-called 'no-fault' Section 21 eviction notices for landlords and agents, while also strengthening the Section 8 eviction process as an alternative. In addition, the Bill is expected to include the concept of ‘lifetime deposits’, which would enable tenants to transfer deposit payments from one property to another. The main goal of this would be to speed up and cut the costs of moving to new rental properties for tenants, while making the whole process more hassle-free.

Are lifetime deposits a good idea?

The thinking behind lifetime deposits is that it will make moving between rental properties quicker, easier and cheaper for tenants, as they’re not waiting for the return of their old deposit to put towards a new home.

Many tenants, including students and young professionals, tend to move around rental properties quite frequently and would no doubt appreciate there being less red tape and strings attached.

Ben Beadle, chief executive of trade body the NRLA, says lifetime deposits for tenants provide an opportunity to reduce the upfront cost of renting, but adds that ‘they need to work for all concerned’.

Meanwhile, consumer website Money has given the concept a cautious welcome. It says that, according to findings from Halifax, tenants have seen costs rise substantially in the past year, up by 10% to an average of £821 pcm, compared to an increase of mortgage costs at an average of 1% to £753 for those who own their own homes.

As well as rising rents, one of the biggest issues facing tenants is the size of the deposit they need to save in order to move. According to the Office for National Statistics, the current average deposit stands at £1,054, which needs to be paid in advance before moving into a new home and typically before the deposit from the tenant’s previous property is released - making moving home difficult or even unaffordable for many renters.

With these figures in mind, the prospect of a lifetime deposit would likely be very popular, but Money has warned that there may be issues with the introduction of such a concept.

“At first glance, the new plan for tenants’ deposits to move with them from property to property looks like an all-out win - but the devil will be in the detail,” James Andrews, senior personal finance editor at the consumer website, said. “The first point to make is that not all deposits are equal - which means there needs to be a simple way to add to the amount you have. The second is that not all moves are seamless - what happens when there’s a gap or, worse, an overlap between one rental contract ending and another beginning.”

He added: “And finally - while the tenancy deposit protection scheme means a landlord can’t withhold your money, it doesn’t mean they can’t make deductions for damage. If this is disputed, then that money is just as tied up as it would have been if you had to go out and find a new deposit for the next property as you do now.”

The biggest advantage of lifetime deposits – also known as deposit passporting – is that tenants won’t need to save for a new deposit each time they move house. Previous Government surveys have suggested that two-thirds of tenants have no savings, which means stumping up the cash for a new deposit before getting the old one back is not viable for many.

But there are understandable concerns, too, which will need to be ironed out to ensure it’s a system which works for landlords, letting agents and tenants alike.

When might we see lifetime deposits in action?

Reform to the rental sector has been a long time coming. As mentioned above, it was first given a brief mention in the Conservative manifesto for the December 2019 election – some 18 months ago now – and was included in the Queen’s Speech of that year, with the pledge that it would be included in the legislative programme for 2020.

But the Government has said its timetable was delayed by the pandemic, which has made getting any other business in front of Parliament much trickier.

Some expected the 2021 Queen’s Speech to include firm proposals on rental reform, rather than mere talk of white papers and further consultations.

It is likely to still be some time yet until the legislation is actually enforced, with a White Paper and further consultations expected, and ongoing opposition from the lettings industry and others. However, it does seem certain that the changes will be introduced at some point, as there is wide public and cross-party support for the measures.

Landlords and letting agents will be pleased that widespread rental reform – which in some cases they see as damaging to the market – is still some way off and will undergo further consultation, while tenant campaigners will be happy that the prospect of rental reform is now on the horizon.

However, given the ongoing pressures of Covid-19 and Brexit – which continues to take up the lion’s share of parliamentary time – it is most likely that any legislation won’t be brought to Parliament until the end of this year at the earliest.

Given its scale and importance, the Bill is likely to be debated on strongly, and face various amendments, and may not have the smoothest passage through Parliament. In all honesty, it seems unlikely the Renters’ Reform Bill will become law before the second half of 2022, if not later.

But what is for sure is that rental reform – and the likelihood of lifetime deposits – is now a big step closer.

 

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