Up to £1.2 billion in deposits could be unaccounted for!

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The latest research by Hamilton Fraser’s
deposit replacement provider, Ome, has revealed the huge sums of tenant money
that is estimated as being held by landlords and agents without protection via
a deposit protection scheme.

Ome’s sister company, mydeposits, manages 25%
of the total deposit protection market and their latest records show they
currently protect more than 876,000 live deposits, suggesting there is an
estimated 3.5m deposits protected across the entire market which equates to
some £3.9bn in value!

This means that with 3.5m protected tenancy
to a value of £3.9bn, the average tenant is paying £1,139 for a tenancy
deposit.

Ome compared these statistics with the latest
English Housing Survey report which shows an estimated 4.60m tenancies in the private
rental sector in 2019. With only 3.5m of these tenancy deposits accounted for
in protection schemes, there are potentially 1.1m tenancies that either have
not had a deposit protected, do not have deposits, or are using deposit
replacement products. At worst, there could be as much as £1.2bn in deposit
monies that are not protected.

However, the latest report
into deposit protection compliance rates by the Center for Economics and
Business Research (CEBR) estimates that 14.5% of all deposits held are not
protected by landlords or agents. This means of the estimated 1.1m tenancy
deposits that are unaccounted for, just over 500,000 (14.5%) cash deposits
could currently be unprotected, putting £578m at risk.

However, this would suggest there are still
some 586,000 tenancies in the private rental sector that are neither compliant
nor unprotected, suggesting a growing preference amongst landlords to ditch the
traditional cash deposit.

Landlord’s deposit taking
habits are changing

This could be explained by two factors:
firstly the increased acceptance of deposit replacement products such as Ome
and, secondly, some landlords opting to request no deposit at all, with the
latest research showing as many as 600,000 tenancies in the private rental
sector currently opting for one of these two options.

The lack of a rental deposit is already a
theme becoming popular with “Build-to-Rent” providers who operate large numbers
of rental units and forgo a traditional deposit, mitigating the risk by
providing additional complimentary services such as cleaning to their tenants.

As the industry becomes more
service-orientated and changes to legislation lead to tenants receiving more
consumer protection, landlords and agents are looking at ways in which they can
streamline their businesses, with innovation in the deposit sector looking to
be fertile ground.

But for those 500,000 landlords across the
nation that have taken a deposit and failed to place it in a compliant
protection scheme, there are consequences. They run the risk of fines of up to
three times the deposit plus the deposit itself. At £1,139 for the average new
deposit, it could cost them to the tune of £4,556 per unprotected deposit!

Co-founder of Ome, Matthew Hooker,
commented:

“The reality is that the private rental
sector is changing, and has been changing gradually through the formal
introduction of deposit protection in 2006 and the subsequent launch of the
more traditional protection schemes.

It’s impossible to tell just how many
deposits are still sat unprotected in the bank accounts of either rogue
landlords or agents but based on market data we can make a conservative
estimate that this total value runs into the hundreds of millions of pounds.

We’d always advise tenants to check which
deposit protection scheme your agent or landlord is part of and to make sure
they give you the documentation confirming the deposit is protected.

For landlords and agents that would rather
not have to worry about the often arduous and risky process of managing a
deposit, we’d recommend looking at products such as our own deposit replacement
membership rather than hoping they don’t get caught. It removes the need to
take cash deposits but keeps you protected should the worst happen.”

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