Tenants need choice when it comes to spiralling rental costs

An opinion piece by Sam Reynolds, CEO of Zero Deposit

Just weeks ago, the Bank of England brought a halt to its aggressive attempts to manage inflation with a freeze in interest rates, the first time an increase hasn’t been seen since rates started to rise in December 2021. This was in reaction to inflation falling at a greater pace than expected, having driven the cost of living sky high in recent times. 

Great news for the nation’s homeowners and buyers who have been struggling with increased mortgage costs. However, there is one segment of the property market who will be less enthused about the future affordability of their living situation - and that’s the nation’s tenants.

In the last five years, the average monthly rent across England has climbed by 14%. That may not sound significant, but it equates to an increase of £116 per month, almost £1,400 over the lifetime of a 12 month tenancy. 

And that’s just the national average, the monthly cost of renting in Bristol has climbed by 41%, meaning tenants are paying over £5,000 more in a single year, with other areas such as Gloucester, Liverpool and Norwich also seeing increases of more than 30%.

Too large an obstacle

Our latest analysis found that this means that the average tenant across the UK is now spending 56% of their monthly net income on the cost of renting, climbing to 67% for the average UK female and to as much as 128% for some of the worst paid professions, such as cleaners. 

Of course, those who face this high cost could consider themselves lucky. Why? Because securing a rental property in the first place can often be too large an obstacle for many to overcome, primarily due to the requirement of an upfront deposit.

While this practice has now been capped at five weeks asking rent - thanks to the introduction of the Tenant Fees Act 2019 implemented in June 2019 - a Zero Deposit survey of UK tenants found that the cost of renting and placing a deposit remains the biggest challenge for half of tenants. 

In fact, in the last year alone, the average tenant has seen the cost of a rental deposit increase from £1,300 to £1,434.  

This means that before they can part with 56% of their net monthly earnings to cover their rent, they have to pay 65% of their paycheck simply to secure a rental property. In many cases, these costs are incurred within the same month, averaging at a cost of £2,677 - 120% of a tenants monthly income after tax. 

For 54% of tenants, overcoming this cost means dipping into their savings, while a further 15% turn to the Bank of Mum and Dad. One in 10 are forced to wait for their previous rental deposit to be returned, while the rest have little choice but to plunge themselves into more debt with loans, credit cards and overdrafts. 

The good news is that those who can afford it, or those waiting for a previous deposit to be returned, can rest assured that their money is in safe hands, with landlords required to protect your deposit in an approved scheme for any assured shorthold tenancy.

Alternative schemes

There are an estimated 5.3 million privately rented households in the UK* which means that typically, over £7.5 billion could be currently held by the three custodial schemes - TDS, My Deposits and the Deposit Protection Service.

To put this into perspective, that’s more than the government’s entire annual budget for the Department for Environment, Food and Rural Affairs, which really demonstrates the might of the rental market and the huge financial cost involved when it comes to upfront deposits alone. 

However, it does highlight why deposit alternative schemes are growing in popularity amongst tenants. The ability to bypass the high cost of an upfront deposit better positions them to tackle the high cost of renting and living, but it also leaves them with money in their pocket to make their house a home. 

This can further alleviate the financial pressure faced when moving into a new home when it comes to the additional costs such as furniture, kitchen appliances and so on. 

Of course, this attractive proposition means that renters are more susceptible to the proposition of deposit alternative schemes and the Competition and Markets Authority has previously raised concerns that some companies may be taking advantage of this fact. 

As with any area of business, not all deposit alternatives are created equally and the official guidance from the Department for Levelling Up, Housing and Communities is that tenants should always opt for a regulated option. 

Faster payouts

This isn’t guidance that should be followed by tenants alone, but by landlords and letting agents as well, if we are to ensure that the provision of a fair experience for tenants and landlords is guaranteed. In fact, the Competition and Markets Authority (CMA) have signalled their intent to investigate poor behaviours within the deposit alternative category. Music to our ears and we hope this will uplift standards. This is a product that solves the #1 pain point for tenants but is, in many cases, being corrupted for commercial gain.  

That’s why we’ve worked tirelessly to spearhead the Zero Deposit offering within the UK market. We are the UK’s only deposit replacement alternative that provides both landlords and tenants with full regulatory protection, setting the standard for the category. 

Enhanced protection for landlords with faster payouts than a cash deposit. An easier, more affordable way for tenants to secure a rental property at one week's rent and a small additional fee. 

It’s all about choice and protection for tenants and landlords and since launch, Zero Deposit has protected over £100m for UK landlords and put £66m back into the pockets of tenants in upfront savings. When given the choice, 65% choose Zero Deposit versus a cash deposit. This is why we support the CMA’s focus on deposit alternatives - it’s an option that solves tenants' biggest pain point when moving and it’s a category that’s worth protecting .

*Private rental stock sourced from the English Housing Survey, Gov.Wales, Gov.Scot and Communities-NI.