What's the nasty surprise for buy-to-let landlords that the government has quietly announced?

Landlords have faced some tough new rules in recent years, and the latest surprise announcement by the government is unlikely to make things easier.

Alongside the Queen’s Speech last week, the government quietly issued background notes that contained an outline of how tenancy deposits would be capped at one month’s rent - something that was not contained in the Queen’s Speech itself.

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The decision to cap tenancy deposits is a fresh blow to landlords as their budgets are already being squeezed more than ever due to buy-to-let changes such as the reduction of tax relief and high stamp duty rates.

Are deposits typically above one month’s rent?

Around 40 per cent of deposits are more than one month’s rent, according to the National Landlords Association (NLA).

The association argues that while the new deposit cap will appeal to tenants who are struggling to save for their deposit, it could cause issues for landlords.

They warn that the cap may lead to some tenants seeing the deposit as the last month’s rent, which would leave landlords out of pocket at the end of the tenancy if, for example, the property has been damaged.

The draft Tenants’ Fees Bill

The measure is part of the draft Tenants’ Fees Bill that is being proposed by the government.

The bill also aims to ban landlords and letting agents from requiring tenants to make any payments as a condition of their tenancy, with the exception of:

• rent
• a capped refundable security deposit
• a capped refundable holding deposit
• tenant default fees

Proposed new Bill is a ‘political gesture’

Richard Lambert, chief executive of the National Landlords Association (NLA) said: “The decision to cap tenancy deposits at no more than one month’s rent smacks of a political gesture from a government desperate to court the voters who supported their opponents at the last General Election.

“Some landlords use a higher deposit to give them the extra confidence they need when letting to higher risk tenants, so this could also have the unintended consequence of deterring them from offering their property to those likely to be struggling with affordability in the first place”.