The proportion of tenants turning to borrowing money to cover cash deposits for their next property has seen a notable uptick over the past twelve months, as per findings from Reposit, a provider of deposit alternatives.
In a survey commissioned by Reposit and conducted among 1,000 current renters, a significant 38% revealed that they were resorting to various means to finance their move. These methods included seeking assistance from friends and family, utilizing credit cards, taking out personal loans, or dipping into their overdrafts to meet the costs associated with transitioning to a new home. This surge in reliance on borrowed funds underscores the financial strain faced by renters amid escalating housing costs and economic uncertainties.
According to Reposit data, the percentage of tenants resorting to borrowing money to cover cash deposits has seen a notable increase of 8% over the past twelve months. This period has also witnessed a significant rise in average monthly rents, soaring by 10% from £990 to £1,088 (March 2023 to March 2024). These escalating rental costs, combined with hikes in mortgage rates impacting landlords’ repayment obligations, have created financial challenges for tenants, leading to a surge in the average five-week cash deposit, which now stands at £1,256.
The latest survey findings from Reposit shed light on the various methods tenants are employing to finance their deposits. A substantial 20% of renters are turning to credit cards to cover their cash deposits, while 15% are seeking financial assistance from friends or family. Additionally, 12% of renters are resorting to dipping into their overdrafts, and 8% are opting for personal loans. It’s worth noting that some renters are utilizing multiple sources simultaneously to meet the hefty deposit requirements imposed by landlords.
In the wake of months marked by elevated inflation rates, tenants have found themselves grappling with intensified financial challenges, leading to a notable surge in borrowing behaviors. Despite a recent downtrend, inflation continues to outpace the Government’s targeted 2%, standing at 3.2%, thereby perpetuating the strain on living expenses.
Chief Executive Ben Grech sheds light on a prevailing misconception within the rental market: the belief that tenants capable of furnishing a five-week cash deposit of £1,200 inherently demonstrate greater financial reliability. However, recent survey insights challenge this notion, revealing that nearly 40% of tenants are resorting to borrowing funds to fulfill their cash deposit requirements. This underscores the importance of adopting a more nuanced approach to assessing affordability, one that prioritizes comprehensive referencing and checks conducted by specialized providers. Such measures are essential for accurately gauging tenants’ financial stability and minimizing risks associated with rental agreements.
Reposit’s stringent tenant screening process encompasses multiple checks, including credit history, identity verification, and an affordability assessment. Prospective tenants are required to demonstrate a salary that is at least 30 times the monthly rent. Should applicants fail to meet this criterion, the provision of a guarantor becomes necessary to secure the tenancy.
According to Grech, deposit alternative products offer tenants a crucial lifeline by providing them with essential financial breathing space. These products prove particularly beneficial for tenants navigating the challenge of saving for a cash deposit while awaiting the return of their previous one. Additionally, deposit alternatives alleviate the financial burden exacerbated by the current cost of living crisis, characterized by a staggering 10% increase in rents over the past year.
In light of the soaring rental costs and economic uncertainties, deposit alternative products emerge as a viable solution for tenants seeking relief from financial pressures. By offering flexibility and easing the burden of upfront cash deposits, these products empower tenants to navigate the rental market more confidently. Moreover, they play a pivotal role in ensuring housing affordability amidst challenging economic conditions, thereby fostering a more inclusive and sustainable rental landscape.
Opting for this alternative payment method, which involves providing a non-refundable fee equivalent to one week’s rent instead of the traditional five-week deposit, offers tenants a more financially feasible option when securing a rental property. By avoiding costly lenders and minimizing upfront expenses, tenants can better manage their finances during the transition into their new home. Simultaneously, landlords benefit from extended protection, with coverage spanning eight weeks instead of the standard five, all at no additional expense.
“We’re pleased to witness the increasing relevance of deposit alternatives within the UK’s private rented sector,” he expressed. “Moreover, we advocate for tenants to exercise diligence by verifying whether the deposit alternative they’re considering is regulated by the Financial Conduct Authority (FCA),” he emphasized. This ensures tenants are protected by regulatory standards, safeguarding their interests in rental transactions and fostering transparency within the rental market.
