Do students have to pay a deposit for rented property?20-09-2022 | Property Occupants
Your new student tenants might not be up to speed on rental property deposits but you 100% should be.
Have you been seeing terms like ‘holding deposit’ and ‘tenancy deposit’ flying around? Start your letting career in the student market with clarity and confidence. Let’s break down what deposits you should be asking for and the correct way to manage them.
So, do students have to pay a deposit?
Yes. They absolutely do.
Just because your new tenants are students, it doesn’t mean they get off of the hook for paying a deposit. Students will typically come from a position of having some financial support from sources such as a government maintenance loan for full-time students, bursaries or scholarships. In addition, students will have access to housing advice through their university or college which can be helpful to you if disputes occur later on.
Before we start, have you organised your Landlord’s Content Insurance?
Let’s just run through the deposit basics before we discuss why the student market is a valued place to position your buy-to-let property.
What is a holding deposit?
Also known as a ‘holding fee’, a holding deposit is a refundable payment taken by the landlord or letting agent from the tenant to reserve the property before contracts are signed.
Much like the rest of us, students will have to agree to a holding deposit to initially hold the property.
As standard practice, landlords should not proceed with any other interested tenants once the holding fee has been received.
The holding deposit converts over to the tenancy deposit once the tenancy agreement has been signed. The tenancy agreement essentially protects your asset from malicious damage.
What is a tenancy deposit?
A tenancy deposit is a returnable sum of money paid to the landlord or letting agent which is held as a security against any rent arrears, property damage or required cleaning when the tenant moves out.
When does a holding deposit become a tenancy deposit?
Once your prospective tenants have seen the property, given it a big thumbs up and sent the holding deposit, you’ll get them to sign the tenancy agreement. At which point, (in most cases) the holding deposit converts into their tenancy deposit. They may have to pay an additional amount to hit the pre-agreed tenancy deposit amount.
How much tenancy deposit can I ask for?
The standard amount of tenancy deposit required is between 4-6 weeks of rent. 5 weeks’ rent is the limit applied to tenants such as students in halls of residence and lodgers as long as your rent is less than £4,167 a month.
Do I have to legally protect the deposits in a scheme?
You do not have to legally place the holding deposit in a scheme. However, you do have to hold the tenancy deposit in a government-approved Tenancy Deposit Protection (TDP) scheme. You’ll have 30 days after the tenancy agreement has been signed to protect the tenancy deposit.
Remember the holding deposit switches over to the tenancy deposit as soon as the agreement has been signed.
There are three TDP’s in England and Wales to choose from:
- Deposit Protection Services
- Tenancy Deposit Scheme
Returning the deposit
Due to university term times, students make for very good tenants who are usually interested in a one-year agreement. Most of our insurers at CIA, ask for a direct tenancy agreement to be in place for a minimum of 6 months. One year is commonly the basic length of term for your assured shorthold tenancy (AST) agreement with students.
At the end of the agreement, you’ll be checking for damages and settling any financial arrears (hopefully there are none).
If the property and contents have been left as found, you’ll have 10 days to return the tenancy deposit.
Reasons not to return the deposit
Get in the know. What’s the real difference between damage and fine wear and tear? Refer to the assured shorthold tenancy (AST) agreement and images were taken before the tenancy began to navigate through what you should be identifying as damage.
Each item should be dealt with clarity. You can deduct any damage costs from the tenancy deposit but take a look at this guide to deposit deductions first.
Advantages of renting to students
It’s not all doom and gloom. There are some compelling reasons why you should let out to students.
- Predictability – the student property market is considered consistent.
- Time – ATS agreements last approximately 1 year with a constant stream of new potential tenants.
- Location – Buying in one of the university cities leaves you in a strong selling position if and when the time comes.
- Higher yield – Multiple occupancy equals more income from your property.
Start letting your property on the right foot with CIA.
Get your landlord building insurance and landlord content insurance sorted before your student tenants enter the property. CIA can help you now by requesting a callback or just give us a call on 01788 818 670.
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