Renters' deposit scheme 'scandal' exposed as tenants 'lose out on millions'
Private renters in England and Wales are losing out on the potential benefits of £169million in interest on their money protected as deposits, research has found.
Generation Rent said £5.37billion of renters' deposit money is protected by three government-accredited schemes in England and Wales. The campaign group said millions of pounds worth of interest on renters ' money is not finding its way back to them.
It called for deposit money to be pooled and invested, with any returns on it going into a funding pot for tenants. Renters could then access the cash for legal challenges against their landlord, or to help reduce the upfront costs of moving house, such as through deposit guarantee schemes for tenants in financial hardship and facing homelessness.
People moving into rental housing often have difficulty raising a deposit in the first place. Polling commissioned by Generation Rent shows 16% had to borrow money to cover the costs of their last move, and 29% had to use savings.
Landlords are required to protect deposits in a government-accredited scheme. In England and Wales, the schemes offer landlords two options. Either they can hold onto a tenancy deposit and pay to insure the cash, or place the deposit with a scheme free of charge.
In the insurance option, which accounts for £2.9billion of deposits, landlords can keep the interest that builds up on tenants' money, Generation Rent said. The group recommends that insurance-backed deposit protection schemes be discontinued.
It is calling for all deposit funds, minus a small portion to pay out successful landlord claims, to be invested in assets. The campaign group's study, which analysed returns in line with the current Bank of England base rate of 4.25%, found that millions could be generated in annual returns.
The research took into account that some of the deposit funds would not be able to be invested to ensure cash is available to return deposits back to renters at the end of their tenancy.
Dan Wilson-Craw, deputy chief executive at Generation Rent, said: '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.'
An Ministry of Housing, Communities and Local Government spokesman said: 'Our landmark Renters' Rights Bill will level the playing field and give tenants greater security in their homes by banning s21 no fault evictions, empowering tenants to challenge unreasonable rent hikes, and banning unfair bidding wars.
"We are currently reviewing the deposit system to ensure it works effectively and identify how we can improve outcomes for tenants.'
::: Opinion surveyed 2,000 UK private renters for Generation Rent between March 31 and April 9.
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