Activists in the Generation Rent organisation claim private renters in England and Wales are losing out on the potential benefits of £169m in interest on their protected deposits.
A statement from the group says that if the £5.37 billion in deposits protected by the approved government-accredited schemes in England and Wales were pooled and invested, it could generate significant returns.
And it says the proceeds could “fund tenants to sue their landlord for unsafe homes, and reduce the upfront costs of moving by £817 on average.”
A statement says: “Renters currently get just £17m of benefit per year from the existing funds held as deposits, but face huge barriers in raising a deposit in the first place. 16% of respondents to an Opinium survey commissioned by Generation Rent had had to borrow to cover the costs of their last move, and 29% had to use savings. A new Renters’ Support Fund, advocated by Generation Rent, is modelled on a similar programme in Australia, and would involve consolidating deposit schemes into a single system run by one non-profit provider.”
Landlords are required to protect tenancy deposits in a government-accredited scheme. In England and Wales, landlords can choose whether to hold on to the cash and pay to insure the deposit (insurance-backed), or place the deposit with the scheme free of charge (custodial).
Currently, insurance-backed schemes, accounting for £2.9 billion of deposits, allow landlords to keep the interest that accrues on the money. Generation Rent is demanding the current insurance-backed deposit protection schemes be discontinued, with all deposits protected custodially instead.
Generation Rent claims that only the 54% of tenants whose landlord chooses to use a custodial deposit scheme get interest on their money, and at low rates in the region of 0.7%, worth £17m per year based on the £2.4 billion held in such schemes.
And it claims that is all deposit funds, minus that required to pay out successful landlord claims, were invested in assets providing a return in line with the current Bank of England base rate of 4.25%, the annual income could be worth £226m per year. After deducting £40m to cover the administration costs of the schemes, this would leave annual funding to benefit private renters through.
Generation Rent does not explain how such a scheme would cost £40m annually to administer, nor does it highlight accounts capable of accepting such a large total sum and giving the same rate of interest as the BoE base rate.
Nonetheless it suggests using this apparent windfall to allow:
The activists say this package would require an interest rate of 2.3% on the current value of deposits in England and Wales. Any surplus could be returned to tenants as interest on their money held in the scheme, though this would not be considered part of the deposit that the landlord had a claim on.
Dan Wilson-Craw, deputy chief executive at Generation Rent, says: “Renters face many disadvantages in the housing system. Around half lack savings, making moving home a more painful process than it should be. Limited access to legal support means it is hard to take action if your landlord is failing to keep your home safe.
“So it is a scandal that the billions of pounds of renters’ money tied up in deposit schemes is not being used to improve the experience of renting, and in many cases sees landlords and letting agents collecting the interest. With deposit schemes’ contracts up for renewal, the government has a golden opportunity to get renters’ money working for renters.”
This article is taken from Landlord Today