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Is your rental deposit safe in the hands of a protection scheme?

Research by money.co.uk and the Cebr finds that 15% of landlords are sitting on an estimated £514m of unprotected deposits.
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  • Approximately one in five (4.6 million) households in the UK are privately rented. With the average protected rental deposit now £1,040, the total value of deposits paid to landlords and placed in tenancy deposit protection schemes equates to a whopping £3.2 billion1

  • There are an estimated 1.9 million landlords in the UK2 - 284,000 of these are still not complying with deposit protection rules, leaving renters without third party protection and vulnerable to unfair losses when they move out

  • It is estimated £514 million worth of deposits are not protected; this could mean that landlords sitting on this cash are together earning almost £8.5 million3 a year in interest on deposits that should be protected

  • Despite the number of protected deposits almost doubling from 1.7 million in 2009 to 3.1 million today, almost one in seven landlords fail to protect this money in one of the approved deposit protection schemes

  • Landlords who fail to protect their tenants' deposits run the risk of a penalty of up to £2,4004. However, it's the tenants who must take landlords to court5 as there are no government measures in place to police it

Despite government intervention to make it a legal requirement for landlords to protect renters' deposits in one of the government-backed schemes 6, new research1 carried out on behalf of financial comparison website money.co.uk by the Cebr (Centre for Economics and Business Research) reveals that 284,000 landlords have failed to do so.

Research estimates that these landlords are sitting on £514 million of deposits7 that should be protected by an official third-party service.

With approximately one in five (4.6 million) households in the UK now privately rented, and the average protected deposit at £1,040, the total value of deposits paid by tenants and placed in protection schemes by landlords has now reached a whopping £3.2 billion.

Despite the risk of fines for landlords who fail to protect their tenants' deposits, 15% are still failing to do so running the risk of a £2,4004 penalty.

Landlords that flout the rules could together be earning up to £8.5 million a year in interest on unprotected money, while leaving themselves and their tenants with no third party protection when their agreement comes to an end.

What is deposit protection?

It is mandatory for all landlords to protect deposits for assured shorthold tenancies via a government-backed tenancy deposit scheme within 30 days of receipt8.

They must also give tenants prescribed information about where their deposit is protected, who they are renting from and how they raise a dispute. Different approved deposit schemes are used in England and Wales to Scotland and Northern Ireland6 but they all operate in a similar way.

The schemes give landlords and tenants access to a free dispute resolution service if things go wrong when the tenant moves out, eliminating the need for court action in many cases.

The government imposed deposit protection schemes to stop landlords unfairly taking money out of deposits for things such as wear and tear or pre-existing damage when tenants move on.

With this protection in place, an alternative dispute resolution scheme will step in and assess the case and make sure any money held back by the landlord is a fair deal for both the tenant and the landlord.

However, compliance with these rules is not being monitored effectively and the onus to report and take action against the landlord lies with the tenant. For tenants who cannot get their landlord to place their deposit with one of the schemes, money.co.uk's 'taking your landlord to court' guide should help9.

Hannah Maundrell, Editor in Chief at money.co.uk, comments

"Renting is a money minefield and with troubled times ahead for the buy-to-let market, the problems caused by 'dodgy landlords' are only likely to get worse. While many landlords are doing the right thing and protecting deposits in one of the official government-backed schemes, a worrying amount of money is falling through the cracks and far too many tenants are being left vulnerable.

"Renters must take control and ask landlords which protection scheme their money will be stashed in before signing on the dotted line. Existing tenants must ask for proof their money is protected if their landlord hasn't given them the correct written documentation.

"It's not right that tenants are left responsible for taking their landlord to court if their deposit hasn't been protected. The government needs to step in and take decisive action. Introducing a compulsory register listing every landlord that rents out property in England and Wales would be a start.

"This works for Scotland and Northern Ireland and it seems crazy this hasn't been brought in across the UK. Add in tenants' ratings and reviews to this too and you have both the beginnings of a solution that helps renters make an informed choice about who they're handing over buckets of cash to; and the foundation for policing landlords that are currently going unchecked.

"That said, it's not just renters that stand to benefit from deposits being protected; after all, landlords need a safeguard against renters that misbehave too. I can't understand why any landlord wouldn't do this; it doesn't have to cost anything to place money with a tenancy deposit scheme and could save so much hassle later on."

What should you do if your rental deposit isn't protected?

  • Renters, you can take legal action if your landlord fails to protect your deposit and give you the required information within 30 days of receiving all or part of your deposit. If you live in Northern Ireland they only have 28 days.

  • Your deposit is considered 'received' from the moment the landlord takes any part of the payment, not when the funds have cleared or full deposit has been submitted. The rules don't apply to holding deposits until the tenancy is agreed and they become an official rental deposit.

  • If the deposit is not protected, you must apply to a county court under part eight of the Civil Procedure Rules to force the issue or to resolve a deposit dispute but only if you live in England and Wales; you need to go via the Sheriff Court in Scotland and Environmental Health in Northern Ireland. You may incur legal costs as a result but these may be claimed back if you are successful. This guide has more information.

  • Legally, your landlord must give you information about the scheme as well as protecting the deposit. This is not the same as just giving you the official receipt received from the scheme administrator. It is a detailed statement regarding the deposit and must be accompanied by an explanatory leaflet which each scheme issues for the tenant.

  • Tenants can check if their deposit has been protected by visiting the relevant deposit scheme website or using the Shelter's website to check all three schemes in England and Wales. You will need to provide your postcode, tenancy start date and deposit amount.

A copy of the full Centre for Economics and Business Research (Cebr) report can be found here.

Notes to Editors: 1. All research and calculations were carried out by the Centre for Economics and Business Research (Cebr) on behalf of financial comparison website money.co.uk in December 2015. This calculation is based on data from the Tenancy Deposit Scheme, My Deposit and the Deposit Protection Service. 2. Based on Cebr calculations, this figure is based on the most recent HMRC analysis of land and property tax returns completed by landlords. This figure excludes individuals who have: rental income but pay through their PAYE code and do not submit a return; rent out rooms but income is below threshold for the Rent a Room tax relief; income from furnished holiday lettings; and individuals receiving rental income via companies. Therefore this figure is an approximation. 3. Unprotected deposits total £514 million. Based on the best instant access interest rate of 1.65% AER, total earnings are £8,481,000 - money.co.uk calculation. 4. Fines are up to three times the monthly deposit which was on average £795 in 2015, based on Cebr research. 3 x £795 = £2,385, or roughly £2,400. £1,040 is the average 'protected' deposit, £795 is the average across both protected and unprotected deposits (UK rents excluding Northern Ireland). In Northern Ireland further fines may also apply. 5. This applies in England, Wales and Scotland. Tenants in Northern Ireland can go via Environmental Health. 6. There are three different deposit protection schemes that apply to each of England and Wales (the Tenancy Deposit Scheme, My Deposit and the Deposit Protection Service), Scotland (the Letting Protection Service Scotland, SafeDeposits Scotland and My Deposits Scotland) and Northern Ireland (the Tenancy Deposit Scheme Northern Ireland, My Deposits Northern Ireland and the Letting Protection Service NI). 7. This is figure is likely to be an underestimate because the figures were sourced from the Tenancy Deposit Scheme (TDS) who hold a 42% market share of all deposits protected in the UK. 8. A shorter 14 day period applies to landlords in Northern Ireland. Landlords in England, Wales and Scotland have 30 days to protect deposits. 9. This applies to England, Wales and Scotland; tenants in Northern Ireland should turn to Environmental Health as a first port of call. 10. With My Deposits and TDS a fee is payable to protect the deposit. No fee is payable with DPS.


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