The amount of cash sitting in rental deposits is set to soar by 40% over the next 5 years – despite government plans to cap deposits announced in last week’s Queen’s Speech.
Research by YouGov predicts that number of households living in the Private Rented Sector in the UK will grow by 24% by 2021 – depriving the UK economy of at least £5.8billion in tenancy deposits.
With the average UK tenant currently needing to stump up £967 in tenancy deposits before being handed the keys to a new property, the figures predict that 5.9m households will be renting privately within 4 years, removing an extra £2.3bn from the economy on top of the £3.5bn held in the bank accounts of landlords and letting agents and in tenancy protection schemes today.
Government plans to cap tenancy deposits at the value of one month’s rent – unveiled last week – will have no impact upon the figures.
Deposit reform campaigner Ajay Jagota described the figures as an “absolute scandal”
The figures, which do not include any increases in rents which may occur over the next five years, show £3.1bn being lost to the economy in Britain’s biggest cities alone, including:
- £2.6billion in London
- £90million in Birmingham
- £69million in Leeds
- £68 million in Manchester
- £48million in Bristol
- £24m in Sunderland
- £18m in Newcastle
The survey also show that 37% f of tenants now rent out of choice rather than necessity – with renters naming the flexibility and fewer responsibilities of renting as principle reasons for them not purchasing properties of their own.
The figures, commissioned by property firm Knight Frank, also show that 68% of renters still expect to be living in the rental sector in three years’ time.
The Department of Communities and Local government’s most recent Housing Survey revealed that the Private Rented Sector has doubled in size since 2004, while homeownership has also fallen to its lowest rate since 1985.
Ajay Jagota founder of deposit-free renting solution Dlighted, campaigns for reform of the private rented sector and was one of the first commentators to predict deposit reform was on the government’s agenda, stating before the General Election “deposit reform is now unavoidably on the agenda… like it or not, deposit reform has arrived”.
Responding to today’s figures he said: “Tenancy deposits are a blatant economic inefficiency in serious need of government intervention, an intervention which could save 6million renters an average of £1000 by the time of the next election.
“The £3.5billion already is an eye-watering figure enough, but the £5.8bn it could rise to within five years is monstrous. With 97% of deposits unnecessary this is an absolute scandal.
“I’m not convinced a deposit cap goes anywhere far enough, but I believe the industry has to accept that this is just the first step. I predicted pre-election that tenancy deposit reform is now irrevocably on the agenda and even just this week deposit-free renting was proposed in an influential blog by leading property academic Professor Brian Sturgess, you can read it here.
“The tide is turning in favour of deposit-free renting, and those of us who have worked so hard to put reform on the agenda – even when it has not been a very popular attitude in our industry – are entitled to feel a little vindicated.
“There are an infinite number of better ways all that money could be spent, and by abolishing out-dated tenancy deposit schemes with deposit-free renting and landlord insurance we can save renters a fortune while giving landlords better protection and boosting our economy or facilitating generation rent onto the housing ladder via transfer of funds into Help To Buy Isa’s.”