Holding deposits – an overview for landlords

Holding deposits – an overview for landlords

As a landlord, you’re probably aware of holding deposits, but may not be entirely sure how they work. Two of the most common questions that our team at Lyss Homes are often asked are:

Why are holding deposits needed?

When is a holding deposit returned?”

To help you, we’ve put together this overview so that you can gain a greater understanding of the ins and outs of tenant holding deposits.

What Is A Holding Deposit And Is It The Same As A Tenancy Deposit?

The first confusion arises when landlords think that a holding deposit and a tenancy deposit are, essentially, the same thing. This isn’t the case. Holding deposits (or holding fees as they are sometimes known) are sums of money paid by the prospective tenant when applying to rent your property.

This deposit will secure the property and is made before the individual becomes your tenant. Legally, it can only be the maximum amount of one week of rent. Tenancy deposits, on the other hand, are paid right before the tenant moves into the property and can be a maximum of 5 weeks’ rent in England if the property’s annual rent is under £50,000 or 6 weeks’ rent if the annual rent is over that figure.

Scotland has different rules in that the tenancy deposit must be a maximum of 2 months’ rent while in Wales, the tenancy deposit represents any amount of money held by either the landlord themselves or their agent as a security against losses incurred due to the tenant’s actions, typically equating to about one months’ rent.

Tenancy deposits must be put into one of the deposit protection schemes approved by the government, and if the deposit isn’t stored in one within 30 days of its receipt, landlords may face penalties. Holding deposits, on the other hand, are not required by law to be put into one of the deposit protection schemes.

Reference Checks And Holding Fees

Once a tenant has paid a holding deposit, the landlord should carry out their checks on the tenant’s references. If they pass those checks, the next step is to sign the tenancy agreement before arranging a date for moving in. Should the tenant fail the checks, however, the amount paid as a holding deposit will come into play.

If the prospective tenant has knowingly provided inaccurate information which leads to them failing the reference checks, the landlord may retain the deposit. In a similar vein, if the tenant submits their application and progresses to referencing before backing out of renting the property, retaining the deposit is also often the preferred course of action. On the other hand, if it’s the landlord’s choice to no longer proceed with renting out the property, the tenant will receive their deposit back.

When Is A Holding Deposit Returned?

When everything goes smoothly with the tenant’s application being approved, references passed, and the agreement signed, then the tenant will receive the amount of their holding deposit in the form of a deduction from the first month of rent paid.

Are Tenant Fees And Holding Deposits The Same Thing?

Holding deposits aren’t fees that tenants are charged. Rather, they’re safety measures that protect landlords and their agents from any financial losses. A ban on tenant fees enacted in 2019 has caused some confusion about holding deposits. However, since tenants receive back the amount that they pay as a holding deposit, it isn’t deemed to be a fee. Therefore, it’s entirely acceptable and even encouraged to ask for one.

To find out more about holding deposits, please get in touch with the lettings team at Lyss Homes on 02080505452.

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