One in five renters have borrowed money, which must be repaid, to cover their five week cash deposit, a poll has revealed.
The research conducted by deposit alternative supplier Reposit found that of this group, 6% secured £1,500 or more, 18% borrowed £1,000 – £1,500 and 24% obtained between £500 and £1,000.
A previous poll commissioned by Reposit found that 38% of tenants were relying on friends and family, credit cards, personal loans, or overdrafts to help cover their lump sum. However, not all of this debt was necessarily repayable.
The latest survey of 1,000 current renters found tenants from across all age brackets and in each UK region were turning to credit to pay for their cash deposit, which now costs around £1,218 – according to Reposit data.
Despite lower rents in the North compared to the South, a larger percentage of tenants in the North East are borrowing higher amounts exceeding £1,500. In this region, the average let-agreed rent is £947 per month (according to TwentyEA), resulting in an average five-week cash deposit of around £1,184.
Borrowing higher amounts was also prevalent in the West Midlands (average pcm £1,078), London (£2,772 pcm) and the East Midlands (average £1,034 pcm).
Regarding age, those borrowing most frequently were 18-34 years old, while those aged 55-64 were the most likely to borrow the highest amounts of money of £1,000 – £1,500+, probably due higher rents. Overall, women needed to borrow higher amounts of money than men.
Ben Grech, chief executive of Reposit, says: “The broad assumption still exists within the industry that being able to pay a cash deposit is an indication of financial stability. Our research demonstrates that this is just a myth. In fact, tenants are borrowing money to be able to pay a cash deposit. This puts them in a more precarious financial position right before moving into a property – which is not at all what most landlords would want.
“With rents and cash deposits at record highs, one in five tenants are now burdening themselves with repayable debt to cover their lump sum, which only adds to their financial strain. Conversely, deposit alternatives remove this significant expense, easing the upfront financial burden on tenants.”
Grech claims a tenant’s capacity to pay the monthly rent in full is best assessed by quality referencing and affordability checks carried out by specialist providers.
He adds: “As a minimum, Reposit insists tenants pass a credit history check, identity verification and an affordability check to show their salary is at least 30 times the monthly rent.
“As the Renters Rights Bill edges closer, landlords are becoming more proactive in assessing tenants’ financial stability to mitigate the risk of rent arrears, potential evictions, and disputes.”
This article is taken from Landlord Today