How Much Deposit Should A Landlord Ask For?

How Much Deposit Should A Landlord Ask For?
It’s a question often asked by both tenants and property investors alike: “how much deposit should a landlord ask for?”.

There’s no definitive answer on this as it will depend on a number of factors, not least the location and size of the property in question.

Whatever the situation, the amount of deposit should always be worked out as a percentage of the rental value of the property rather than a fixed amount that can be applied to all.

We’ll look at exactly how much deposit a landlord should ask for in a moment, but first, let’s establish exactly why a deposit is needed in the first place…

Why Do Landlords Ask For A Deposit?

Whether a landlord asks for a deposit or not is entirely down to the landlord, there’s no legal requirement for them to do so.

So, why do landlords ask for a deposit? Put simply, it all comes down to risk.

A deposit helps protect a landlord against the risk of non-payment of rent or against repairing any damage to the property after a tenant has moved out.

In fact, many landlords ask for a deposit in order to help encourage the tenant to better look after the property.

After all, if you were a tenant and you knew your own money was at risk if you didn’t leave the property in good condition, you’d be more careful to not cause any damage, right?

What Is A Rental Deposit Used For?

In short, it’s simply security for the landlord against the tenants’ obligations under the tenancy agreement.

It means that if any part of the tenancy agreement is broken, such as leaving the property in a poor state of repair, the landlord can withhold some, or part, of the deposit to cover the costs they incur rectifying the problems.

Therefore, a rental deposit is used to protect the landlord. It is not used to cover any fees and the tenant is entitled to repayment of the deposit at the end of the rental agreement, providing there are no rightful reasons to withhold it.

Factors That Affect The Amount Of Deposit Required

The amount that a landlord should ask for as a deposit will depend on a number of factors, not least:

The Area

Believe it or not, the level of deposit which is requested often depends on where the property is located.

After all, if all the other nearby rental properties are only asking for 1 months rent, a property that requires 6 weeks or more would instantly become less attractive to renters.

The Type Of Property

Again, much will come down to how much deposit other properties of a similar type are demanding as a deposit.

What Affects A Landlords Deposit

Risk Factors

If a tenant is particularly high-risk, such as one who does not have a steady income, a landlord may decide to ask for a higher deposit in order to better cover their back.

Supply & Demand

When there is more demand for rental properties than there is supply, you’ll usually find landlords asking for higher deposits.

When supply is outstripping demand, landlords usually ask for lower deposits to make their property appear more attractive.

So, How Much Deposit Should A Landlord Ask For?

With everything considered, it’s time to address the main question at hand. How much deposit should a landlord ask for?

There is no hard and fast rule but there are three popular schools of thought:

No Deposit

This sounds counter-intuitive after everything we have discussed and it certainly comes with some big risks attached.

However, the thinking goes that if you do away with a deposit, the property instantly becomes more affordable, and therefore attractive, to potential tenants.

And a more attractive property will find new tenants more quickly, minimising the amount of time a property is stood empty.

Not asking for a deposit also makes a landlords life easier in some ways since the money won’t have to be placed in a deposit protection scheme.

1 Month’s Rent

This is by far the most common deposit landlords tend to ask for. If the property is one of your first investments, 1 month’s rent as a deposit is a great place to start.

As it is so common, tenants are more used to it and so few are likely to be too put off by a 1-month rent deposit.

It’s also still enough to protect the landlord relatively well should anything go wrong when the tenant leaves.

6+ Week’s Rent

Some landlords now ask for 6 weeks worth of rent as a deposit, sometimes even more.

While this helps to better protect and cover the landlord, many tenants see such high deposits as ‘greedy’ and will instantly be put off by such demands.

Generally, try and stick to deposits that are under 6 weeks worth of rent.

How To Go About Protecting A Tenants Deposit

If you’re a landlord and you decide that you will take a deposit from your tenant, you’ll need to put the deposit into a government-backed tenancy deposit scheme (TDP).

This is a legal requirement for all homes rented on a shorthold tenancy that started after 6th April 2007.

Paying the deposit into such a scheme helps protect the tenant as the money cannot be spent. It also requires that money is repaid to the tenant with 10 days of an agreement being reached on how much shall be returned.

So, if you’re a landlord you should be asking not just ‘how much deposit should a landlord ask for?’ but also is it worth the hassle of having to find a TDP to pay it into?

In most cases, the answer will be yes, purely for the protection it provides but that does come down to your attitude to risk.

Speaking of risk, have you read our article that asks the question “is landlord insurance worthwhile?“.

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