What Are Holding Deposits? A Guide for Landlords

Holding deposits are often confused with tenancy deposits, so what are holding deposits, what are they used for, and why is it relevant to landlords?

A holding deposit (or holding fees) is an amount paid by a prospective tenant during the tenancy application process. It is used by tenants to hold the property whilst the application is going through and prevent other tenancy applications on the property.

Legally, a holding deposit (or fee) can only be charged at the rate of one week’s rent and is not required to be held in a deposit scheme.

How is a holding deposit different from a tenancy deposit?

Tenancy deposits are a sum of money (typically somewhere between 4-6 weeks rent) which is paid right before the tenant moves into the property. It is held by an independent deposit scheme, not the landlord or the estate agency and is intended to cover the costs of any repairs required on the property in the event of any damage caused by the tenant or unpaid rent.

Both tenancy deposits and holding deposits are not legally required in the UK, however it is highly recommended that landlords require at least a tenancy deposit to protect against any damage or unpaid rent.

Unlike tenancy fees, which were a fee charged to tenants on application (these were banned as of 2019), holding and tenancy deposits are safeguards to protect the landlord. Whilst fees are not returned, deposits are, should there be no cause to retain the funds.

Why agents use a holding deposit?

A holding deposit is used to reduce the risk to landlords and agents during a tenancy application process in the following circumstances:

  1. Applicants provide inaccurate or false information
  2. Applicants pull out of the tenancy process
  3. Applicants do not take the necessary steps to complete a tenancy application in the agreed timeline
  4. Applicants fail the right to rent immigration check

If the prospective tenant has knowingly provided inaccurate information which leads to them failing the reference checks or backs out of the application process then the landlord may retain the deposit. 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 to return a holding deposit?

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.

The importance of reference checks

By using a holding deposit, we are able to ensure that tenants are serious about the property they are applying for, the application completes in a timely manner and they provide accurate information. At Sperring Residential, we take reference checks seriously. Not only does this help us to make sure we find the best person to look after your investment, but we also want to make sure that we match the right tenant with the right property.

To find out more about holding deposits, please get in touch with the lettings team at Sperring Residential on 01582 825548.

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