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Fact Check: Manchester tenants are being pressured into ‘no-deposit’ schemes

By Steve Heldon

Tenants in Greater Manchester are being encouraged to enter into ‘no-deposit’ schemes in order to secure a place to live – and spending hundreds of pounds in non-refundable fees.

The prospect might initially sound unequivocally appealing: rent with no deposit. No requirement to fork over a large sum of money when signing for a property, and no need to worry about whether it will return to your pocket at the end of the tenancy. The stuff of dreams.

But no-deposit schemes, an increasingly common option for prospective tenants, are not as straightforward as they sound.

In an overstretched housing and rental market that seems unlikely to become more accessible any time in the near future, tenants are being required to make sacrifices. Being able to view a property prior to making an offer is a luxury of a bygone era, and if you don’t make an offer higher than the asking price you can be sure somebody else will. Applicants are advised of another strategic move they might make: that their application has a higher chance of success if they choose not to make a deposit.

This option does have its face-value advantages, and it might make certain properties more accessible to tenants who cannot afford to put money aside for a deposit. Prospective tenants may also be advised that the no-deposit option will improve their credit score, as well as saving them money in the short-term.

The long-term however, is a somewhat different story. Instead of paying their deposit up-front, tenants are required to make a different monthly payment for the duration of their tenancy. While this fee typically seems to amount to a lower total sum than that of the traditional deposit, the amount is entirely non-refundable.

Lucy Jones, Chief Operating Officer for the property sector giant Lomond Group, claimed that the schemes aim to address key difficulties faced by tenants.

She said: “the industry over the past few years has reacted to look at other ways for tenants to move into a property, or move between properties, without having to find those big, up-front costs”.

“What’s important, certainly for us, is choice… so tenants can decide what’s best for their own financial circumstances.”

And it’s a choice that many tenants are keen to make. Jones says that an average of around 35% of tenants will choose a no-deposit scheme over the traditional deposit.

However, it seems that letting agencies are exercising an influence over the making of this decision. Some companies, such as the national agency Leaders, are advising prospective tenants that their no-deposit option is “preferable to the landlord”. And it’s no wonder why – while the traditional deposit would be tied up in a tenancy deposit scheme, ultimately inaccessible to either party, the no-deposit option means that the landlord will be paid an extra fee via the letting agency.

Kate Bradley, a member of the Greater Manchester Tenants Union, said: “Estate agents may well be pushing people or pressuring people into taking this scheme because it’s better for [themselves].

“As long as they had in the paperwork that it was a choice, they can just hold their hands up and say ‘well, we didn’t require them to do it’”.

Bradley believes that no-deposit schemes are simply a way of reinventing various charges that were prohibited by the Tenant Fees Act in 2019. No-deposit schemes allow letting agencies to charge extra fees through loopholes in current legislation, but have been largely untested in the courts.

Rather than an attempt to support tenants who cannot afford a traditional deposit, Bradley says that the schemes are simply a “lucrative option” for larger companies.

She added: “Tenants, especially private and social tenants, are in a really difficult situation in the cost of living crisis and it’s not acceptable to be trying to build new ways to make money out of them.”

One thing, according to Lucy Jones, is clear: “Alternatives to a traditional deposit are here to stay.”

Source: Healthy Duck.