Nearly one third of tenants are borrowing money to fund a cash deposit, a survey has shown.
A poll of 1,000 current renters reveals 30% are turning to friends and family, using credit cards, personal loans or dipping into their overdraft to cover the costs of moving home.
The findings show 13% of renters are using credit cards, 14% are borrowing from friends or family, 8% are dipping into their overdrafts and 6% are using personal loans. In some cases, renters are using more than one of these sources to fund their deposits.
CEO Ben Grech said: “There’s a common misconception within the industry that tenants who can’t afford a deposit of five weeks rent, can’t afford to take on a tenancy.
However, a tenant’s capability to produce a lump sum of five weeks rent is not a reliable indicator of their financial stability, or whether they can afford their monthly rent on an ongoing basis. As our survey shows, at least one third have turned to borrowing to fund a cash deposit.”
With the average monthly rent now standing at £1,103.19 per month*, a cash deposit – usually of five weeks rent – now totals around £1,378 which is locked away until the tenancy ends. This often leaves the renter stretched to fund a new cash deposit while waiting for their previous one to be returned.
Mr Grech explained a tenant’s capacity to pay the monthly rent in full is best assessed by quality referencing and affordability checks carried out by specialist providers.
He said: “As a minimum, Reposit insists tenants pass a credit history check, identity verification and an affordability check to show their salary is at least 30 times the monthly rent.
By choosing the option of a deposit alternative product – which requires one week’s rent instead of the usual five – tenants may avoid having to turn to lenders and therefore be in a better financial position when moving into a property, and actually reduce their risk of arrears.”
Deposit alternative products were highlighted in the updated ‘How to Rent’ guide, published by the Government on 24 March which explains tenants may be offered deposit replacement products as an alternative to a cash deposit.
Mr Grech added: “We’re pleased to see the Government’s acknowledgement that deposit alternatives are an increasingly relevant part of the UK’s private rented sector. Equally we support the message that tenants should check if the product they’re offered is FCA regulated.”
With Reposit, tenants pay only one week’s rent (as a non-refundable fee) while offering landlords eight weeks protection instead of the usual five weeks rent completely free of charge.