How is the deposit amount worked out?
Ahead of moving into a rental property the landlord or letting agent will the tenant to pay a deposit (also known as a bond in some countries).
The maximum deposit cap of 5 weeks’ rent applies to properties where the annual rent is less than £50,000 - this used to be 6 weeks. A deposit cap of 6 weeks’ rent still applies where the rent is £50,000 or greater. If the rent is over £100,000 the maximum cap applied in the Tenant Fees Act will not apply.
When is a deposit paid
Typically the deposit is paid once reference checks have been passed. Sometimes tenants may be asked to pay a holding deposit whilst the reference checks take place. If this happens, then this amount should be taken off the deposit a tenant will have to pay. If a tenant decides to pull out after paying their holding deposit, the holding deposit may well be lost.
As well as paying the deposit, tenants will also typically pay one month's rent in advance before they move in, usually by a bank transfer.
Where does the deposit go?
By law, a tenant's deposit must be put into a government-approved tenancy deposit protection (TDP) scheme if the home was rented on an assured shorthold tenancy that started after 6 April 2007. This will be done either by the landlord or the letting agent. Gov.uk states that in England and Wales the deposit can be registered with one of three schemes:
In Scotland and Ireland there are separate TDP schemes
The landlord or letting agent must put the deposit into the scheme within 30 days of getting it. Once this is done tenants will automatically receive a confirmation from the TDP where the deposit has been placed. If this is not received, contact should be made with landlords or letting agents immediately.
How do I get my deposit back?
At the end of the tenancy, the law states that that landlord or letting agent must return the deposit back to the tenant within 10 days of you both parties agreeing how much will be returned. Claims for deductions can be made if the landlord or letting agent feel tenants have breached the tenancy agreement or if there has been damage to the property.
At this point it's important to remember there should be an inventory carried out on the property as soon as a tenant moves in so any issues are dealt with and recorded immediately. A great guide to inventories can be found here.
If there is a dispute, then the deposit will be protected in the TDP scheme until the issue is sorted out. All TDP scheme's provide a free and impartial resolution services in this event. You can read more about what can be deducted here. Ultimately if damage has been adjudicated to have taken place, it will cost money to fix and therefore will come out of the deposit.
Things you can do to get your deposit back in full
The inventory is the key document when it comes to getting the deposit back. As long a tenant can show they have looked after the property in relation to the inventory the deposit should be returned back in full into the tenant bank account. Unfortunately things don't always turn out to be straightforward hence the dispute resolution process highlight above is in place.
Alternatives to paying a deposit
Some letting agents may offer an option whereby a tenant can pay a fee instead of paying a deposit although be aware as a tenant you will still be liable for any damage caused.
The Government has also talked about 'Lifetime Deposits' which move with a tenant. This isn't available at the moment, but this might change in the future.
CreditLadder can help you improve your credit score
If you want to improve your credit position by reporting your rent payments, CreditLadder is the only way to improve your credit score and position across all four of the main Credit Reference Agencies in the UK, namely Experian, Equifax, TransUnion and Crediva. Building up a high credit score has a lot of benefits, including helping you access finance at better rates - this can also help save you money.
CreditLadder also runs a free mortgage application service in partnership with Tembo which will tell you how much you could borrow.
Remember the information provided in this article is for information purposes only and should not be considered as advice.
