Growing numbers of tenants borrowing money to fund cash deposits

New research has found that as many as 1 in 5 are now using credit cards to fund cash deposits on rental homes.

Related topics:  Finance,  Landlords,  Tenants
Property | Reporter
25th April 2024
Landlord Keys 22
"We’re pleased to see that deposit alternatives are an increasingly relevant part of the UK's private rented sector. Equally, we support the message that tenants should check if the product they’re offered is FCA-regulated"

Newly released research by Reposit has highlighted a rising percentage of tenants borrowing money to fund their cash deposits over the last 12 months.

A poll commissioned by the company across 1,000 current renters revealed 38% were turning to friends and family, using credit cards, personal loans or dipping into their overdraft to cover the costs of moving home.

This figure was found to have risen by 8 percentage points over the last 12 months, a period which has seen average monthly rents rise by 10% from £990 to £1,088 (March 23 to March 24), according to Reposit data. This follows increases in mortgage rates which have significantly impacted landlords’ repayments and consequently affected tenants.

The rise in rental costs has forced the average five-week cash deposit up to £1,256, leaving many tenants struggling to find this large lump sum.

The latest survey findings show that 20% of renters are using credit cards to fund their cash deposits, 15% are borrowing from friends or family, 12% are dipping into their overdrafts and 8% are using personal loans. In some cases, renters are using more than one of these sources to fund their deposits.

These increases in borrowing follow months of high inflation which has exacerbated tenants’ financial difficulties. Although now falling, inflation remains higher than the Government's 2% target at 3.2% which has kept living costs high.

The chart below shows how renters’ borrowing patterns have changed year on year to fund their five-week cash deposits based on the survey results.

Credit source:  2023 - % of tenants borrowing 2024 - % of tenants borrowing  Percentage Point Rise YoY
Credit cards  14% 20% 6pp↑
Borrowing from friends & family 13% 15% 2pp↑
Overdrafts  8% 12% 4pp↑
Personal loans  6% 8% 2pp↑
% of tenants borrowing money to fund a cash deposit   30% 38% 8pp↑

CEO Ben Grech said: “There’s a misconception that tenants who can produce a five-week cash deposit of £1,200 are more financially reliable than those who would prefer not to commit this large amount of money.

"However, this is not the case because as our survey shows, almost 40% of tenants are borrowing money for their cash deposit. Assessing affordability therefore is best carried out by quality referencing and checks by specialist providers.

“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. If not, they must provide a guarantor.”

Mr Grech added: “Deposit alternative products can provide financial breathing space, particularly for tenants who are caught up in saving for a cash deposit while waiting for the return of their previous one. The products can also alleviate the financial pressure during the current cost of living crisis which has seen rents increase by 10% in one year.

“By choosing this option - which requires a deposit of one week’s rent (as a non-refundable fee) instead of the usual five - tenants may avoid turning to costly lenders and remain in a better financial position when moving into a property. Landlords also benefit with eight weeks of protection instead of the usual five weeks of rent completely free of charge.

He concluded: "We’re pleased to see that deposit alternatives are an increasingly relevant part of the UK's private rented sector. Equally, we support the message that tenants should check if the product they’re offered is FCA regulated."

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