Security deposit cap – where do landlords and tenants stand?

We’re lucky enough to interact with thousands of landlords and tenants every month. As a result, we get the chance to engage them on the issues that are affecting the private rented sector, whether its rent levels, regulation or fees.

Over the last year, we’ve had plenty of opportunities to ask about their views on the issue of a cap on tenancy deposits. Through these conversations we’ve learned that there’s a clear appetite for such a cap among both groups. 

Tenants and landlords understand the benefits of a cap

Landlords clearly understand the need for tenants to be able to afford to move and can see that having to raise a large deposit (as well as the first month’s rent) can create an unnecessary barrier to tenants’ mobility.

The overwhelming majority of renters also understand that landlords should have the right to protect themselves against damage to their property.

There is clearly consensus on the benefits of deposits, which provide peace of mind for both parties, particularly when accompanied by a free, impartial dispute resolution service for those rare occasions when landlord and tenant do not agree on how the money is returned.

Where should a deposit cap be set?

We’re confident that it is excessive deposits that represent the issue. As a result, a cap set at a reasonable level would be a decent solution. But what is reasonable?

There’s a huge range of types of property on the market, and it’s clear that setting a single figure wouldn’t work. Set it too high and some tenants will be priced out. Set it too low and landlords will no longer be comfortable renting larger or more expensive properties. For these reasons, relating the figure to rent seems sensible.

Looking at our figures, we can see that deposits normally average between a month and six weeks’ rent. A cap of six weeks’ worth would therefore represent a policy that was in line with the thinking of the overwhelming majority of the sector and suit the requirements of most properties. 

The problem with pets

There is one set of circumstances which may create issues for this system: pets. In our experience, landlords are more likely to want to set higher deposit levels where pets are involved, as both the likelihood and potential extent of damage and mess increases significantly.

The risk is that if landlords don’t think that six weeks’ rent is enough to cover themselves, they may simply just refuse tenants with pets.

Nevertheless, by setting a maximum, landlords will retain some flexibility, particularly if they are minded to set a low deposit for a particular tenant or property.

*Julian Foster is managing director of The Deposit Protection Service