The boss of the Property Franchise Group – whose brands include Martin & Co and EweMove – says he does not think there will be a market for tenancy deposit replacement products once the tenancy fees ban comes in.
The replacement products typically give tenants the option of paying the equivalent of one week’s rent, with the money being non-refundable. Deposits which are conventionally protected mean the tenant needs more money up-front but in most cases are fully or partly refunded.
The amount that tenants will have to put down as deposits is due to be capped to four weeks’ rent in legislation likely to include the fees ban, likely to come into force next year.
Ian Wilson told EYE that he does not think tenants will go with the replacement option once their costs go down.
He said: “I’ve been looking at the economics of these products, as we finesse our approach to mitigating the tenant fee ban.
“Research carried out by our group shows offices are currently charging £320 plus VAT as the average tenant-side tenancy set up fee; an average rent £775 per month; and an average deposit fluctuating from a low of 4.8 weeks rent equivalent up to 7.2 weeks.
“If we take a mid-point of six-weeks rent equivalent, then the cost to move into an average property is rent of £775, deposit of £1,073 and fees of £384 (including VAT).
“That comes to a total of £2,232.
“After the tenant fee ban comes into effect, and assuming that deposits are capped at the equivalent of four weeks’ rent, the cost falls to £1,490, a saving of £742 or a discount (rather neatly) of one-third in tenant costs.
“Our conclusion is that deposit replacement warranties and insurances which claim to help make moving into properties more affordable will be as popular as Christmas trees in January.
“Or are we missing something?”
The tenancy deposit replacement product likely to have the most clout has yet to launch. Zero Deposit, which has the backing of Zoopla and is run by Jon Notley, is due to go live later this year.