Finding the right place to live is one of the biggest decisions you will make during your relocation. For anyone viewing properties in Britain’s saturated rental market – 20% (4.7 million) of households in England rent their home – the pressure is on. In London, for example, the average rental price (£2,000) is at its highest in three years due to a lack of new properties on the market. As competition grows, potential tenants are becoming increasingly reliant on holding deposits to secure their ideal home.
What is a holding deposit?
A holding deposit is an up-front payment of no more than one week’s rent to the landlord or letting agent prior to entering into the main tenancy agreement; it’s paid on the understanding that this reserves the property while references and background checks are processed. What could possibly go wrong?
Potential pitfalls of paying a holding deposit
Having traipsed around a seemingly endless chain of properties, you finally think you’ve found the one! It’s so amazing that you follow the letting agent’s advice and pay a holding deposit, to prevent someone else snapping it up first. Now the searching is finally over you can relax and plan the big move. Don’t be so sure. Unfortunately, a lack of transparency means the holding deposit process is littered with pitfalls. Rather than leaving potential tenants with peace-of-mind, they are often left out of pocket and no closer to finding somewhere to live.
What happens if you decide to pull-out?
Unlike the tenancy deposit – paid as a security measure in the event the tenant damages the property or fails to pay the rent – the holding deposit is not protected by the government-backed deposit protection scheme. Therefore, if you decide to withdraw your application for tenancy, you may struggle to get your deposit back. Tenants are often unaware that landlords and letting agents aren’t obliged to refund holding deposits under such circumstances. So, it comes as a complete surprise when the recipient retains their money to compensate for any inconvenience caused.
What if the property is marketed by more than one agent?
If the property is marketed by more than one agent, you can’t guarantee your holding deposit has taken it off the market. Who knows how many other interested parties have paid a deposit on the same property? Consequently, you still might lose out to someone else, even though – in theory – you’ve paid for it to be “reserved”.
The failure of the holding deposit process to do exactly what it says on the tin often results in tenants ceasing their property search, only to find out they hadn’t secured the property after all. This frustration is often further compounded by a delay in refunding the deposit, which can impede the resumption of the tenant’s property search.
Can you cover your back?
Currently, the only measures tenants can take to guard against misleading holding deposit agreements are:
Establish what terms and conditions apply should they withdraw their tenancy application.
Check whether the property is being advertised by other letting agents.
Holding deposits are – in theory – a useful tool. However, a lack of transparency and formal regulation often leaves tenants back at square one. According to Which’s 2018 consumer review of the private rented sector in England, only 46% of tenants who paid a holding deposit believe doing so was reasonable.