Call for evidence outcome

Tenancy deposit reform: a call for evidence - government response

Updated 16 June 2022

Introduction

From 27 June to 5 September 2019, the then Ministry of Housing, Communities and Local Government (MHCLG), now the Department for Levelling Up, Housing and Communities (DLUHC), ran a call for evidence on tenancy deposit reform, which sought to understand the barriers tenants experience when moving from one tenancy to the next in the private rented sector.

The call for evidence built on the work of the Tenancy Deposit Protection Working Group, which investigated whether improvements could be made to deposit protection to the benefit of tenants and landlords.

This document summarises the main findings from the responses received to the questions raised in the call for evidence. The Department would like to thank the 447 respondents who shared their views.

Respondents were asked in which capacity they were completing the survey. Below are the number of respondents per majority respondent categories:

• Landlord operating as an individual: 159
• Landlord operating as an organisation 11
• Tenant (not living with landlord): 143
• Letting/property agent: 69
• Other – organisation: 20

There were 45 respondents who indicated they were answering in two or more capacities (e.g., as landlord and tenant), as an individual (other), or did not specify who they were. We have not presented the findings from these respondents in this document, given the multiple variations of capacities they represented.

The Department has analysed and presented responses only from the core groups identified above, as these groups consisted of the largest number of respondents.

Respondents did not answer all questions in the call for evidence. As such, the total number of responses varies for each question. In some instances, respondents were asked to select multiple options. This means that percentages will not necessarily add up to 100%.

In considering the responses, the Department’s emphasis has been on drawing out the main views expressed by respondents. However, as the response rate was low, we recognise that the call for evidence includes a relatively small proportion of the sector. As such, the findings may not be totally representative of views held by the majority of tenants, landlords, letting agents, and organisations, or may not provide a full and accurate picture of the problems experienced when moving in the private rented sector.

Summary of responses

The call for evidence asked questions which were arranged into sections along the following themes:

1. Costs of providing a second deposit
2. Existing affordability initiatives
3. Improving existing affordability initiatives and speed of deposit return
4. Exploring new initiatives, including allowing tenants to passport their deposit between tenancies
5. Wider deposit protection reform, including alternative dispute resolution

This chapter addresses the main findings by section.

Costs of providing a second deposit

The call for evidence asked a number of questions around deposit affordability. Most of the questions about respondents’ past experiences with deposit payments did not specify problems experienced from providing a second deposit. Respondents may have therefore reported their experience relating to providing their first deposit.

The majority of tenants said that they had struggled to afford a deposit more than once.

However, tenants reported they found other ways to raise a deposit. They selected multiple options, including borrowing from friends or family (69%), reduced or delayed spending on other items (45%) and taking out credit (37%).

While just over half of tenant respondents (51%) stated that raising a deposit did not stop them from moving, just under half of respondents (42%) stated that being unable to afford a deposit had prevented them from moving to a new home.

The majority of tenant and organisation respondents agreed with the view that tenants in the private rented sector found it difficult to afford a rental deposit when moving between tenancies. However, this did not reflect tenants’ direct experience with affording a second deposit. The opposite was felt by landlords and letting/property agents, who mainly disagreed that tenants found it difficult to raise a rental deposit.

Existing affordability initiatives

This section of the call for evidence asked whether respondents were aware of any existing deposit affordability initiatives, whether they have used any and if they experienced any issues in using them.

The majority of landlords operating as individuals or organisations, letting/property agents, and organisations had heard of existing affordability initiatives, whether that was a local authority scheme, a deposit replacement product, or a rental deposits loan. Tenants had the lowest level of awareness.

There appeared to be low uptake by respondents with 85% of landlords operating as individuals and 91% of tenants stating that they had never used any of the initiatives. Those that had not used the initiatives primarily reported that they weren’t aware of it or didn’t need it.

Of those respondents that had reported they had used these initiatives, 52% conveyed they did not experience any problems using them. For those that had encountered problems, the most common issues raised were difficulties dealing with local authority deposit affordability schemes. Another complaint was that local authority deposit schemes did not cover all costs associated with a deposit payment and/or last the full length of the tenancy.

Improving existing affordability initiatives and speed of deposit return

This section of the call for evidence asked questions about what could be done to improve the awareness and availability of existing affordability initiatives and the speed of deposit return.

Landlords and tenants stated that more information should be provided by landlords, agents, government, councils, Tenancy Deposit Protection schemes and employers to improve the awareness of employer-backed (rental deposit) loans, as well as general advertising and publicity. However, 20% of landlords operating as individuals who responded thought that loans were not the answer or that increased wages or reduced costs were required to make them work.

In improving the availability of local authority schemes, landlords operating as individuals (39%) and tenants (63%) felt that publicity, closer working with the advice sector and better instructions to and from local authorities and agents would help do this. Landlords operating as individuals (37%) or as organisations (50%) additionally thought making schemes easier, available online, and more appealing to landlords would also help. Those organisations that responded thought that widening eligibility rules beyond those most at risk of homelessness or funding/support from central government would be most helpful in addition to the reasons quoted above.

On other financial products designed to bridge the gap in the payment of deposits, the majority of respondents from the five groups stated that advertising by providers, publicising through agents, relevant websites, how to rent guides and through Tenancy Deposit Protection schemes would increase awareness.

When asked whether there were any other actions that could be taken to make it easier for tenants to pay for a new deposit when moving home, 18% of landlords operating as individuals and 38% of tenants thought that passporting or a switch between tenancies/guarantee to the new landlord would be beneficial; 21% of landlords operating as individuals proposed government-backed/interest-free loans; whilst 21% of tenant respondents thought that monthly payments of a deposit after moving in would help and 19% felt that quicker deposit return would improve the situation. However, 38% of landlords operating as individuals who responded commented that there wasn’t a deposit problem and that the onus was on the tenant to save ahead of payment.

Questions were also asked about the respondents’ most recent move, including how long after the tenancy ended did it take for negotiations on deposit deductions to begin and how long did negotiations take overall. In their responses, most landlords stated that it takes less than three days for deposit negotiations to begin and conclude, whilst the majority of tenants felt it took longer.

Of the landlords operating as individuals who responded, 92% said that they are aware of the statutory timeframes around the return of a deposit, compared to 36% of tenants.

Over a third of these landlord respondents (38%) reported using the statutory declaration process to reclaim a deposit, compared to only 12% of tenants. Of the landlords that had used the process, 30% had a positive experience, 23% said it was neither positive nor negative and 48% had a negative experience. Of the tenants that used this process, 14% said that they had a positive experience, 29% said neither positive nor negative, while 57% said they had a negative experience.

Most tenants (90%) who responded agreed that the process for returning a deposit is too slow whereas the majority of landlords operating as individuals disagreed (54%) or neither agree nor disagreed (26%).

When asked whether a definitive deadline for returning deposits could help improve the process, 88% of the tenants who responded answered yes compared to 23% of landlords operating as individuals.

Over a third of tenants (35%) and organisations (29%) who responded thought that the consequences of imposing a deadline for deposit return would be an increased sense of urgency for all parties or a reduction in delays and receiving money back quicker, compared to landlords operating as individuals (15%) and letting/property agents (16%) who thought the same.

A smaller number of tenants (13%), landlords operating as individuals (10%) and letting/property agents (11%) said that there would be no consequences or that they would be ignored, and 8% of tenant respondents proposed introducing penalties for landlords. Landlords operating as individuals and letting/property agent respondents (16% respectively) said that more disputes would go to the Tenancy Deposit Protection Providers, alternative dispute resolution or court.

Landlords operating as individuals (17%) also said that a deadline may unfairly penalise agents and/or landlords and would cause more pressure and money loss.

Exploring new initiatives

This section in the call for evidence asked questions around the Department exploring new initiatives, such as passporting where a tenant could ‘passport’ part of their deposit before the end of their old tenancy. It also sought ideas for possible new market-led approaches available from financial service providers, businesses, landlords and the third sector.

When asked whether the Department should continue to explore the viability of a passporting system, 47% of respondents across the five majority groups said yes and 53% said no. The main reason given for ‘yes’ was that passporting would speed the process up, remove the need for a second deposit, and make the moving process easier for tenants. The main reason given for ‘no’ was that damage can be hidden until the tenant has left, deductions cannot be calculated before leaving, that this would increase risk for landlords, and that it would take too long.

The majority of respondents (70%) agreed that passporting would lead to a change in landlord and tenant behaviour. However, respondents were split on whether this would be a positive or negative change.

In response to a question asking what measures could be put in place to tackle or prevent negative behavioural changes in a potential passporting system, the largest response from across the five groups (42%) suggested not putting passporting in place altogether. The second highest number (19%) proposed penalties for tenants and landlords who behave inappropriately.

28% of respondents across the five groups were in favour of more government or local authority support to make it easier for tenants to pay for a new deposit when moving home. Other proposals included paying in instalments, financial education for tenants, and the creation of an insurance deposit product and deposit replacement products.

When asked if they would be more likely to pay for a passporting service rather than a deposit replacement product if both were offered, 32% of tenant respondents said yes, 18% said no and 51% said they didn’t know or needed more information about the product on offer. Most tenant respondents said they were either not sure what they were willing to pay or would only pay up to £25. 17% said they would pay up to £50 and 10% said up to £100. 9% said up to £150.

Wider deposit protection reform

This section of the call for evidence asked questions around making wider improvements to tenancy deposit protection, particularly around the dispute resolution process and the prescribed information requirements for landlords.

The majority of landlords operating as individuals (92%), landlords operating as organisations (89%), letting/property agents (98%) and organisations (100%) who responded were aware of the alternative dispute resolution services provided by the Tenancy Deposit Protection schemes. Tenant respondents were less aware with just over half (54%) stating they had heard of alternative dispute resolution with the remainder stating that they had not.

Of those who responded, letting/property agents (84%) have used alternative dispute resolution services more than landlords operating as individuals (44%) and tenants (26%).

Just under half (46%) of landlords operating as individuals who responded said that they were either very satisfied/satisfied or neither satisfied or dissatisfied with the current dispute services provided, and 70% of tenant and letting/property agent respondents said the same.

Landlords operating as individuals (59%), letting/property agents (73%) and organisations (75%) who responded were more aware of how to complain about an alternative dispute resolution decision regarding a deposit dispute than tenants (19%).

Regarding prescribed information, the majority of landlords operating as individuals (69%) who responded said that they found the requirements easy to comply with or neither easy nor difficult. Comparatively, 74% of letting/property agents who responded reported the same.

Of the tenants that responded, 80% said that they had read the prescribed information provided to them about their most recent tenancy and 41% said that the information was useful and easy to understand, 25% conveying they neither agreed or disagreed.

Conclusions and next steps

The call for evidence was issued to widen government understanding of the barriers tenants experience when moving from one property to another in the private rented sector. This collection of evidence has provided the Department some insight into how tenants, landlords, and letting agents negotiate the deposit process, the problems they experience during the moving period, and their opinion on any potential reforms.

Since the call for evidence, the Department has considered several models that look to reduce the financial burden of tenancy deposit requirements on tenants while making sure landlords continue to have security of a deposit. The market has evolved since the call for evidence and has begun to develop innovative solutions to affordability issues (for example, loan and insurance products to bridge the period a tenant has a period where deposit requirements overlap). Private solutions have the potential to offer innovative and flexible solutions for different groups.

We recognise these market innovations are in their infancy, but do not wish to curtail the progress that has been made. Therefore, as set out in the government’s Rental Reform White Paper, we plan to:

1. Monitor market-led solutions that aim to reduce the problems experienced during the overlap of tenancies with our expert industry-based working groups, such as the Tenancy Deposit Protection Working Group.
2. Keep the impact and risks of market-led solutions under review, including their affordability and accessibility, with the Tenancy Deposit Protection Working Group
3. Keep the current deposit protection and the broader deposit market under review.

These steps build on the government’s cap on tenancy deposits and further support renters with the costs of moving around the private rented sector. By reducing the barriers to moving, we will give tenants more options if standards are not up to scratch or they find a better deal.

The Department plans to explore the findings gathered through this call for evidence with the Tenancy Deposit Protection Working Group, consisting of deposit protection experts and tenant, landlord, and student industry bodies. The Working Group will continue to keep under review whether improvements can be made to deposit protection to the benefit of tenants and landlords.