The latest figures from the Office of National Statistics show that inflation calculated using the Retail Price Index has increased to more than 2%. This is more than double at the same time last year.
This means that the typical rental deposit loses £23 of its value for every year of a tenancy agreement, worryingly 18% more than four weeks ago.
Out of pocket
Early this year, research from depoit-free renting solution Dlighted and KIS showed that inflation was leaving tenants as much as £420 out of pocket on their tenancy deposits-even when they are returned without deductions.
Their research has showed that with the cost of living rising at 1.6%, the average UK tenancy deposit of £1169 was worth £19 per year less in real terms at the conclusion of a two-year tenancy.
Now, RPI inflation is running at 2%, leaving tenants £23 per year out of pocket. Renters in London are worst off, with their deposit of £2499 losing £96 over a two-year agreement. Those renting in the North East are least affected-just £32 out of pocket over the same period.
The average person is found to buy their first property at the age of 31. This suggests the typical renter stands to lose the equivalent of £256 from the value of their deposit before becoming a property owner.
In London, this loss rises from £105 to £525. As such, buy-to-let landlords should ensure they take out rent guarantee insurance, to protect themselves against a growing possibility of rent arrears.
Ajay Jagota, founder of sales and lettings firm KIS observed: ‘In 97% of cases tenants can expect to see their rental deposits returned, but the impact of inflation means the cash they get back won’t be worth as much as the cash they handed over-even if it’s the same amount!’
‘By the looks of things that is only going to get worse. One of the levers the Bank of England can use to control inflation is raising interest rates – meaning that those renters won’t just see their deposits devalued, they’ll also be missing out on the interest they would be gaining if they were able to save that money instead,’ he continued.
Mr Jagota is concerned that, ‘if interest rates and inflation both end up around 3.5% within the next couple of years, that’s a net loss to renters of 7% a year-meaning that over the course of a typical decade in the private rented sector tenants will see their original deposit lose almost all of its value.’
‘They might only be out of pocket by a few pounds a year, but in the context of overall rising cost of living it will make it harder and harder for renters to put the money away for a deposit for a place of their own.The people affected will be exactly the people Theresa May says she wants to help, and I look forward to hearing the developing thoughts of the new Housing Minister,’ he concluded.