Think tank calls for an end to deposits on private rentals

A property expert is proposing that the deposit system used in the private rental sector for protecting property from damage and future payments of rent, should be replaced by an insurance scheme.

In his new report ‘Down with deposits’, Brian Sturgess proposes that the Government should promote a deposit replacement insurance system as an alternative. This would allow renters to insure against potential damage or missed rent payments without having to find a large up-front deposit, currently estimated to average around £1,041. Such insurance schemes could easily be developed within the existing insurance market and they would allow renters to keep more of their own money when moving into a rented property. It would avoid them having to borrow money to gather enough funds for a deposit. This would be particularly useful for the 31 per cent of private renters who have less than £100 in the bank. An insurance-based model would also allow renters to build up a reputation as a good tenant through a ratings system similar to no-claims bonuses for motor insurance, while ensuring that landlords received protection against property damage and missed rental payments. The report has been published by the Centre for Policy Studies. Another benefit of the proposal is that an insurance-based model would significantly improve the lives of ‘Generation Rent,’ but at no cost to the Treasury.

In the report Brian Sturgess said: “Many people are simply unable to enter the rental market due to the need for a large upfront deposit to be provided before they move in. These proposals offer a solution to the inherent unfairness of renters losing out on the interest they would have accrued on such a deposit, and often having to struggle to get their money back at all.” Polling by YouGov has shown that 43 per cent of renters would support a deposit replacement insurance system with a small cost, rather than the current system of tenants paying large upfront deposits. The report finds the average renter loses over £300 per tenancy due to lost interest and inflation because of forced participation in the existing deposit protection schemes. Forcing tenants to pay large up-front deposits means many people struggle to move between properties. They also lose out on earning interest on their money which instead is retained by their landlord or letting agency, and they often face a struggle to get all their money back.

By Patrick Mooney, editor