Deposit/Bond – Paper Guarantees?

by Robert Mellors

15:25 PM, 12th November 2018
About a month ago

Deposit/Bond – Paper Guarantees?

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Deposit/Bond – Paper Guarantees?

I am hoping to create a Deposit Guarantee Scheme, “Choice Deposits”, whereby the prospective tenant would have the option of paying an extra amount of rent, instead of paying a deposit, and the landlord would pay that extra amount of rent charged to Choice Deposits in exchange for a paper bond (deposit guarantee). I think this would perhaps be in £500 increments, e.g. for every £500 deposit guarantee, the tenant pays an extra £15 pcm rent.

Benefits for tenants:
This would give tenants a choice whether to pay a cash deposit to the landlord, or pay extra rent (ongoing) as an alternative.
It may enable the tenant to use their money for furniture or other things, rather than it being held as a deposit.
It can also assist tenants to budget more effectively.
It also gives low income tenants access to tenancies that would otherwise be unavailable.

Benefits for landlords:
They can offer the property to a wider range of potential tenants, so may be able to let the property sooner and reduce their void periods.
They have the reassurance of a rent/damage guarantee.
They can negotiate between themselves and the tenant what amount of deposit guarantee they want, and what amount the tenant is willing to pay for.
There is no penalty or fines imposed for failing to protect a deposit, as there is no actual cash deposit, only extra rent charged, (it is the landlord that has the protection of the deposit guarantee).
It is cost neutral (free) to the landlord, as they add the cost on to the rent charged to the tenant (with the tenant’s consent).
It can work for any type of tenant, from DSS to high income professionals.
It can work for any amount of deposit required (in £500 increments), and it is not affected by the government plans to limit deposits to the equivalent of one month’s rent.
It enables landlords to have an extra level of deposit guarantee for tenants with pets.

The final details have not been fully worked out yet, but at this stage I would appreciate some feedback from landlords (and tenants), and perhaps also initial expressions of interest from landlords, so that I can further assess the viability of the deposit guarantee scheme.

Thank you.

Robert Mellors
Choice Housing Ltd



Comments

AA

17:30 PM, 12th November 2018
About a month ago

You are trying to circumvent legislation and from what you have described it will fail at the first hurdle. The extra rent is a premium and would be constituted deposit monies , requiring to be lodged in an approved scheme.

Robert Mellors

18:21 PM, 12th November 2018
About 4 weeks ago

Reply to the comment left by AA at 12/11/2018 - 17:30
Hi AA,
Surely landlords and tenants are free to negotiate whatever rent they wish?
It would not be a deposit as it would not be refundable, it is simply part of the negotiated rent.
The landlord would simply decide whether they would like to benefit from a deposit guarantee by using part of the received rent to pay for it, same as when a landlord chooses to pay for Rent Guarantee Insurance (RGI) out of the rental income they receive.
Premiums paid for RGI are not classed as a "deposit" and do not need to be deposited within a government scheme.

Robert Mellors

18:24 PM, 12th November 2018
About 4 weeks ago

Reply to the comment left by AA at 12/11/2018 - 17:30
Hi AA

It is not about circumventing legislation, it is about trying to find solutions to problems experienced by both landlords and tenants, and lack of a sufficient deposit is definitely a problem. Do you have an alternate way of overcoming this problem so as to enable tenants without a deposit to be housed? and also providing some financial protection to the landlord?

AA

19:25 PM, 12th November 2018
About 4 weeks ago

The purpose of a deposit is that the tenant has a material interest in looking after the property at the outset. Not build up the interest as it is occupied. Where is the tenants interest in looking after the property once you hand the keys over ? After 6 months you have £90 banked to cover disrepair. That does not even cover the repainting of 1 wall. We are not co-ops or charities. The business is risky enough without constructing a mechanism that will no doubt be abused..

AA

19:39 PM, 12th November 2018
About 4 weeks ago

Regarding deposits - frankly if you can't afford a deposit you don't deserve to be housed. I mean really - are the cards not stacked up against landlords enough without assuming a generalisation that all tenants are saintly beings with morals beyond reproach ?

Robert Mellors

20:40 PM, 12th November 2018
About 4 weeks ago

Reply to the comment left by AA at 12/11/2018 - 19:25
Hi AA

I understand that after 6 months at £15 pcm that is just £90, but the average length of a private tenancy is much longer than that, and not all of the deposit guarantees would need to be paid out. Also, from the landlord's point of view, the amount paid does not really matter because it still provides the same level of protection for the landlord, i.e. if the landlord pays £15 pcm then they have £500 worth of protection which they would not otherwise have had, so it REDUCES the risk for landlords. As it effectively does not cost the landlord anything, and it reduces the risk for landlords, I really don't understand the relevance of your comment about landlords are not co-ops or charities.

Robert Mellors

21:04 PM, 12th November 2018
About 4 weeks ago

Reply to the comment left by AA at 12/11/2018 - 19:39
Your comment "if they can't afford a deposit they don't deserve to be housed" is ignoring the fact that various life events can cause people to become unemployed or otherwise be in a position whereby they cannot afford a huge deposit and rent in advance. For those people surviving on a low income, they do not have excess funds stashed away for use as a deposit in the event that they need to move home. I'm trying to find a solution to a real problems, not dismiss the problem by saying well if they can't afford a deposit then they don't deserve a home.

I do want to hear from landlords who can advise me as to why this may not work, what are the flaws that they see, why would tenants not want this as an option, why would landlords not want this as an option, etc, but these need to be solid reasons rather than a personal opinion that if tenants can't afford a deposit then let them be homeless.

Luke P

8:52 AM, 13th November 2018
About 4 weeks ago

I have hundreds of properties. We cut people slack all the time. Very rarely does it pay off. If you have nothing to lose (deposit, for example…although I only take a homeowner guarantor), then you’re less likely to comply. A little slip allowed to go without incident will turn into a bigger one. Deposits are also to cover any arrears. If you do not pay your rent, you’re not paying your deposit contribution either. On top of all of that, it’s completwly against most LLs psyche, no matter how you dress it up.

Luke P

8:53 AM, 13th November 2018
About 4 weeks ago

Reply to the comment left by Luke P at 13/11/2018 - 08:52
Would you personally guarantee a tenant for me if I send you £10-£15/mo?

Rennie

10:58 AM, 13th November 2018
About 4 weeks ago

I like the sound of this. I was thinking of offering to refund my (good) tenant's deposits and charge an extra £12pm so I like this conversation as it opens up all the cans of worms that I need to think about. Yes, a great idea if I could get some kind of "cover" for this extra rent.

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