Estate agents are raking in tens of millions in interest on renters’ deposits as high rates bring a massive windfall of passive income.
Agents in England and Wales will make more than £80m this year from billions of pounds’ worth of deposits that they hold for renters for the duration of their tenancies.
As of March 2023, there were 4.7 million rental deposits in protected schemes, with a total value of £4.9bn, according to a report by the Tenancy Deposit Scheme (TDS).
Two years ago, when the Bank Rate was at a record low of 0.1pc, the interest earned on this cash was almost non-existent. Now that the Bank of England has raised interest rates to 5.25pc, the potential earnings have rocketed.
In common law, interest is kept by the company that holds the deposit, rather than the person who owns the money.
Of the total deposits, 55pc by value, or £2.7bn, are held in “insured” schemes, according to TDS. This means that they are protected by one of three government-approved deposit schemes, but are ultimately held by the estate agent, which keeps the interest.
Typical rates on these schemes are currently around 3pc. At this rate, estate agents will make a collective £81m in interest a year.
Toby Martin, lettings expert at the estate agent body Propertymark, said: “The holder of the deposit is entitled to keep any interest. The standard position across the sector is that the tenancy agreement contains the consent of the tenant to that situation.”
This income is rising as rental deposits get larger and more are locked away at higher rates.
Rental deposits are capped at five weeks’ rent (or six weeks if the rent is more than £50,000 per year). Extremely high levels of rent growth are therefore driving a surge in the size of deposits.
In the year to March 2023, the pool of cash in tenant deposits swelled by 8pc, or £374m.
It will have got even bigger since. Rents on new lets across Britain rose by 11.7pc in the year to September, according to Hamptons estate agents.
In its Q3 trading update, London estate agent Foxtons reported a £1.3m year-on-year increase in the interest it earned on rental deposits.
Nationally across England and Wales, the remaining 45pc of rental deposits by value (£2.2bn) are held in “custodial” schemes. This means that the deposit schemes hold the cash and keep the interest.
Under this type of scheme, however, the providers are obliged to start paying interest to the tenant after rates pass a certain threshold which means they have more than covered their costs. These schemes are currently paying tenants interest at a rate of 0.75pc.
Across the total £2.2bn in these schemes, this means tenants will receive £16.6m in interest.
If all tenant deposits were kept in accounts paying the average one-year fixed savings rate, which is 5.29pc according to Moneyfacts, the total annual interest would be £259m.
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2023-11-12 13:57:00Z
CBMiaWh0dHBzOi8vd3d3LnRlbGVncmFwaC5jby51ay9idXNpbmVzcy8yMDIzLzExLzEyL2VzdGF0ZS1hZ2VudHMtdGVucy1vZi1taWxsaW9ucy1pbnRlcmVzdC1yZW50ZXJzLWRlcG9zaXRzL9IBAA
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