Tenant Deposit Scheme – A Nightmare for Buy to Let Investors?
Anyone who is involved or planning to become involved in ‘buy to let’ has surely had their feathers ruffled by the latest government proposals to introduce tenant deposit schemes. But what is all the fuss about and will it really affect the ‘buy to let’ investor?
Tenant deposit scheme – what is it?
To be honest, most ‘buy to let’ investors saw this one coming. For many years there has been much criticism of ruthless landlords keeping deposits from poor tenants for no good reason, simply as a way to boost their profits. However, these landlords are very much in the minority and most landlords use deposits simply to secure their investment and to ensure that they are not faced with huge losses when a tenant moves on. So, will this latest government scheme be a case of the minority spoiling it for the majority?
The tenant deposit scheme is simply a scheme that will regulate the deposits that are paid out as part of a tenancy agreement. It will also offer a dispute resolution mechanism when difficulties arise.
Membership of the scheme is likely to be voluntary. However, landlords may find that if they are not members then they may struggle to attract high quality tenants who welcome the protection.
The scheme itself will be run and managed by The Dispute Service Limited TDSRA, an independently run company that will have overall control of policies and procedures.
How will it be run?
Mechanically, the scheme works by the tenant paying the deposit to an agent who will hold the deposit for the duration of the tenancy. At the end of the tenancy, if the check out is complete and an agreement reached, the deposit will be returned in the conventional way. If no agreement is reached, the dispute will be send to the TDRSA for resolution.
Not all agents will be able to hold deposits on behalf of the landlord, only those that are members of professional bodies such as the Royal Institution of Chartered Surveyors. Therefore, this change may also increase agents’ fees to landlords if they are offering this service.
The TDRSA will charge each agent £6 per week per office and it is likely that agents will look to recover these costs from landlords. However, all dispute adjudications are free; this money, therefore, will be recovered very quickly by a landlord facing a dispute.
Reality is that this new scheme will be a positive change for the ‘buy to let’ market, as it will offer protection for both the tenant and landlord. Costs will be slightly higher for the landlord who will undoubtedly have to refund the price of membership to the agent and, of course, landlords will not be able to benefit from having the deposit sitting in their own bank accounts. Nevertheless, the benefits outweigh the costs in almost all cases. Despite the hype suggesting that landlords will lose out, most experts believe that reputable landlords who are investing in the ‘buy to let’ market will see little difference. Lettings manager at capitaldwellings.com, Fred Drew, believes that the number of people arguing over deposits will be relatively low; he explains: "As long as your tenants know exactly what they have to do before leaving day - whether that’s cleaning or getting the council to remove unwanted possessions - there is hardly ever a problem with the return of the deposit”.
Conclusion
Tenant deposit schemes will offer that extra bit of certainty and an arbitration mechanism that should encourage reputable ‘buy to let’ investors and discourage rogue landlords. Now that can only be good news for those looking for long-term property investment!
More information
http://www.communities.gov.uk/
http://www.tenantdepositscheme.co.uk/
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