Tenancy Deposit Cap Poses Risks for Landlords

Tenancy deposit cap puts landlords at risk

New research has revealed that average tenancy deposits have been steadily decreasing since the deposit cap was introduced at the start of the pandemic.

Tenants paid an average of £948 in 2011, rising to a peak of £1,108 in 2019 according to the research by mydeposits.

In 2020, this dropped 6% to £1,040 and in 2021 it dropped a further 1% to £1,025.

The deposit decrease ultimately means that landlords have less money to cover damage or tenants who don’t pay rent arrears

But, the cost of renting has gone up £202 per month, around 30%, over the last 10 years. The cost of a tenancy deposit is also around 8% higher than it was a decade ago.

Rise in deposits

There has been a 91% increase in the value of deposits protected across England and Wales:

2011: 2.2 million deposits with a total estimated value of £2.1 billion
2021: £4.3 billion and more than 4.2 million deposits

Eddie Hooker, CEO of mydeposits says:

The good news is that it has started to fall since 2019 and the introduction of deposit caps, which have ensured that any sums charged don’t exceed the five to six-week thresholds set by the government.

Hooker added that the pandemic ‘played a part’ in rental values falling and reducing deposits. As it looks likely that rental market values may start to climb this year, we could see a reversal in the downward trend of tenancy deposit amounts.

How can landlords protect themselves?

We have two recommendations when it comes to protecting your investments.

The first is Rent Guarantee Insurance, which protects you in the event of your tenant falling into arrears. Mashroom’s RGI covers you from the first missed payment, up to £2,500 per month and also offers you legal support if you need to evict.

Another option to consider is moving away from traditional deposits to a Deposit Replacement Scheme. This provides you with more cover in the long run and is also easier on your tenant’s pocket.

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