Landlord and best-selling buy-to-let author David Lawrenson says he will not be giving any of his tenants a deposit replacement option.
He said that one reason is that with a traditional insurance-backed scheme, he gets to keep the actual deposit during the course of the tenancy – and says he can use the money to keep his rents competitive.
Only at the end of each tenancy, he says, does he have to ensure that he has the cash available to return the deposit.
Lawrenson, who uses My Deposits, says that he pays a one-off fee of about £20 for each tenancy.
He said: “So far, I have only made deductions in about 5% of my tenancies. One was for the whole amount, the others were all for less than £200. All the deductions were agreed by the tenant, none was disputed.
“Keeping the money is great for my cash flow, and the interest earned on the money is nice too.
“Of course, the useful idiots in Generation Rent and Shelter, would doubtless say, ‘Well, the tenant could do with that cash flow too – and it is hard for them to pay another deposit while waiting to get the money back off their old deposit’.
“I agree there is some truth in that.”
However, Lawrenson says there is a “killer” reason why he doesn’t like replacement deposit schemes.
He said: “When we assess tenants, we do reference checks, credit checks and check tenants’ bank statements. We want to know that the tenants can afford our rents comfortably.
“If a tenant could not afford to pay a five–week deposit because they were waiting for the deposit to come back from their last tenancy, that would indicate to me that they must be only a month or so away from not being able to pay the rent.
“That is not the sort of tenant I want! And that is the main reason why I won’t be offering ‘zero deposit tenancies’ any time soon.”
Lawrenson is the author of books including ‘Successful property letting – How to make money in buy to let’, and is a regular speaker on the topic.
Comments (21)
Landlords can do what they want with the deposit money under this scheme as long as they can pay it back when needed. Nothing illegal there.
Interest earnings don’t stack up- avg deposit is around £1200 HSBC Reve rly reduced saving rate to 0.2% which equates to £2.40 annual interest on £1200.
This is a common psychology of landlords & agents- f the tenant can’t afford the deposit are they really a viable tenant?!
LOL, if only people new. Clearly some do not know the finer points or what companies are using tenants deposits and how many years its being going on, propping these companies up? Nothing illegal as long is it is protected and this is where the insured protection schemes comes into play. I concur with DarrelKwong43, there should only be a custodial i.e Deposit Protection Service.
This is bad practise, this man shouldn’t be writing books
Another know all!
Maybe his prospective tenants should carry out due diligence on his company before they hand over the deposit!
He talks about a tenant being only a month or so away from being unable to afford the rent. Yet he is using other peoples’ money to prop up his cash flow. Makes you wonder how far away he is from going bust?
Am I reading this right? He’s using tenants deposit monies to run his business?
Banks do this every day of the week, in fact they more often, concurrently, lend the same money out several times over with Government and regulator approval (but are required to hold a “reserve”).
I don’t condone Landlords using Deposits for cashflow, such a business would be sailing close to the wind if it needs Deposits for this purpose.
I don’t think it’s wise to compare what this landlord is doing with the fractional reserve banking system. There is a lot more going in behind the scenes with banks. I think this landlord is actually in breach of the deposit scheme guidelines. I wonder if his CMP is valid.
there should only be one scheme….and it should be custodial
yet again, Government complicating issues when it should be simple.
having one schemes removes most of the need for deposit PI.
a monopoly usually doesn’t work well for anyone. It leads to waste. Competition creates efficiency and leads to better outcomes.
Miss-using tenants money….and telling everyone. Maybe I should adopt the same scheme and pay off my mortgage?
‘“If a tenant could not afford to pay a five–week deposit because they were waiting for the deposit to come back from their last tenancy, that would indicate to me that they must be only a month or so away from not being able to pay the rent.’
A very fair point.
It’s a very short sighted point with a failure to appreciate the reality of most people’s lives. If a tenant has a deposit tied up in the current property and wants to move, they have to find another deposit to rent the new place. So essentially they need to have 10 weeks rent in reserve – not 10 weeks rent as savings or set aside for emergencies. 10 weeks rent set aside just so they can afford to move house during their tenancy.
Its all very well saying that everyone should have huge amounts of savings set aside to cover every eventuality but its no more realistic to expect this standard from tenants than it is from landlords. How many landlords for example have the recommended 3 months rent set aside on every property they own in case they have a void?
For Mr Lawrenson to make this comment at the same time he is stating that he uses tenants deposits to improve his cash flow is shocking. It completely overlooks the struggles experienced by lower income families and individuals who may well be very good tenants.
If a tenant is only one month away from not being able to pay rent, the author must be close to not being able to pay his mortgages if he is needing the deposits as cashflow!
It’s an attitude like that that has led to agents running off with tenants deposits!!!!!!!!
I don’t think there’s much doubt (or requirement for an explanation) on why the current scheme is better for the landlord.
I think what Mr Lawrenson may be missing is that the deposit is the tenant’s money – not his. There’s no problem with gaining additional income from holding deposits (for banks a large part their business model is holding other people’s money) and the interest gained may be good for cash flow but the post above talks about only needing to find the money at the end of the tenancy and the deposit itself improving cash flow. That is not good advice to be giving landlords. You need to have the deposit available to return at any time since a tenancy can end with just 1 months notice (or with no notice if its the end of a fixed term, even if your tenancy agreement says otherwise).
Be careful what you do with tenant’s deposits if you keep them – and make sure they are liquid.
A bit concerned that someone writing books on property letting describes the organisations representing his customer base as “idiots”. Its not hard to build up a portfolio of properties when you have capital to invest – even rogue landlords do that and I wouldn’t want to read their books. I have read ‘Successful Property Letting’ and its fine, basic, and there’s lots I don’t agree with but I have nothing against the author. The above post though is dangerous and could prove costly to landlords who adopt an attitude that the tenant’s deposit is theirs until the tenancy ends and to be used for to ensure they have enough cash for other things.
Landlords may also want to consider the tenant’s position. If you were renting a property and had a choice of 2 identical properties with the only difference being the deposit required, which would you choose?
Surely you keep tenants deposits in a designated clients account – the money belongs to the tenant and should not be used for “cash flow” in your business.
Lol I was typing out my reply below whilst you added that Ken – a much more succint way of saying the same thing 🙂
I was also thinking that but have just read the gumpf on their website and it just says “you hold it in your bank account”. surely that can’t be right! interesting.
I echo that!