A range of factors have contributed to this increase, from the cost-of-living crisis and rising rent prices to challenges getting on the property ladder.
Cost-of-living crisis
With the cost-of-living crisis continuing to impact tenant affordability, there has been an increase in rent arrears. A survey by digital mortgage lender, Molo, revealed that nearly 60% of UK landlords have seen a rise in late rental payments, with the average amounting to £723.
As such, tenants are seeking more affordable options when moving into their new home, while landlords want greater protection at the end of tenancy. With deposit alternatives, tenants reduce their upfront move-in costs while landlords unlock extra protection in the event of damages and/or rent arrears.
Change in financial priorities
Millennials and Generation Z make up 80% of the UK rental market, according to Hamptons. These demographics are increasingly represented in the market, bringing different financial priorities and a greater desire for flexibility compared to previous generations, which has driven an increased demand for alternative solutions to traditional deposits.
These younger renters are more likely to consider options that offer lower upfront costs and do not require large sums of money to be stored away and move between deposit schemes.
Rising rent prices
According to HomeLet, rent prices are 5.7% higher than the same time last year, leading to a corresponding increase in traditional deposits.
Given the current average UK rent, tenants typically need to pay around £2,922 when moving into a new property, which includes their five-week deposit and first month’s rent. This excludes all the other costs associated with moving home.
The average tenant choosing flatfair’s deposit alternative has saved £1,000 on their upfront move-in costs, which can instead be used towards new furniture or a deposit on their own home.
Competitive rental market
In today’s market, letting agents are seeking new ways to attract and retain landlords.
Offering deposit alternatives is one method of doing so, as it makes properties more accessible to a larger pool of high-quality tenants, whilst providing up to double the protection of a traditional deposit for charges at the end of tenancy.
Housing affordability
According to Forbes, two and five-year fixed rate mortgages remain at a much higher level than in recent history. Until August, The Bank of England kept its benchmark Bank Rate at 5.25% for 12 months, a 16-year high. Recently, the rate dropped slightly to 5%, which is still higher than historic figures.
This significantly impacts first-time buyers, who are struggling to save the large amounts needed for a deposit. This isn’t helped by the rising rent prices and therefore traditional deposits, which result in large cash outflows for tenants, impacting their chances to save and get on the property ladder. It also impacts those looking to remortgage and negotiate a new deal. Landlords experiencing this must raise their rents accordingly, resulting in higher prices for tenants, which further shows the need for tenants to make savings where possible.
These economic, social, and technological factors demonstrate why there is a growing increase in demand for deposit alternatives in today's rental market. Ultimately, offering alternative tenancy deposit options is about giving more potential renters the choice over what works best for their personal circumstances.
Interested to learn more about flatfair's innovative deposit solutions? Book a no-obligation demo today.
flatfair: Tenancy deposits
Offer tenants lower upfront move-in costs, double landlords protection and streamline deposits with flatfair.
