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Rising Number of Tenants Borrow Money for Tenancy Deposits

A recent study by Reposit, a prominent provider of deposit alternatives, indicates an alarming trend: an increasing number of tenants are having to borrow money to cover tenancy deposits. This financial behavior reflects the escalating costs associated with moving homes.

Shifts in Financial Strategies for Deposits
Reposit’s research, which surveyed 1,000 current renters, reveals that 38% now rely on financial aids such as loans from friends and family, credit cards, personal loans, or overdrafts to manage the upfront costs of renting a property. This figure marks an 8% increase from the previous year. During this time, average monthly rents have soared by 10%—from £990 to £1,088—forcing many tenants to seek alternative funding sources to afford the typical five-week cash deposit, now averaging £1,256.

The breakdown of borrowing methods among tenants includes 20% using credit cards, 15% borrowing from friends or family, 12% using overdrafts, and 8% taking out personal loans, with some tenants combining these methods to gather the necessary funds.

Impact of Financial Pressures on Tenants
The ongoing high inflation, which has only recently started to decline, continues to place additional financial burdens on tenants. Despite a slight decrease, inflation remains above the government’s target of 2%, recorded at 3.2%, maintaining elevated living costs.

Ben Grech, CEO of Reposit, commented on the findings: “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.”

Grech also highlighted the benefits of deposit alternatives, which require only one week’s rent as a non-refundable fee instead of the traditional five-week deposit. “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,” he explained.

Concluding his remarks, Grech highlighted the importance of regulatory oversight: “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.”

This shift towards alternative deposit options could represent a significant change in how tenants manage their finances amid rising housing costs, offering them a more feasible approach to securing rental properties without the substantial financial burden of traditional cash deposits.