For first-time landlords and tenants, the holding deposit process can often raise a few questions. When will the deposit be returned? Is it a tenant fee? Why do landlords ask for one?
This guide explains what a holding deposit is, why it matters and when a landlord might keep it.
- What is a holding deposit?
- What is the difference between a holding fee and a tenancy deposit?
- When is a holding deposit taken?
- Is a holding deposit legal in Wales and Scotland?
- Holding deposits and reference checks
- Why do we ask for a deposit and when is it retained?
- When does the tenant get their holding deposit back?
- How are holding deposit disputes solved?
- Is a holding deposit a tenant fee?
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What is a holding deposit?
A holding deposit (or holding fee) is a short-term payment a prospective tenant pays to secure a property. In England and Wales it must not exceed one week’s rent.
What is the difference between a holding deposit and a tenancy deposit?
A holding deposit is different to a regular tenancy deposit as it is payable before the person becomes a tenant and before any agreement is signed.
A tenancy deposit is usually paid before move-in. In England, the cap is five weeks’ rent for properties under £50,000 pa and six weeks for higher rents.
In Scotland, the amount that can be charged as a deposit cannot be more than two months’ rent. For example, if the rent is £500 a month, the deposit can be no more than £1,000.
In Wales, a security or “tenancy” deposit is any sum of money intended to be held by the landlord or agent as security against any losses incurred through the actions of the tenant. This is typically equivalent to around one months’ rent.
A tenancy deposit must be stored in a government approved deposit protection scheme such as the Deposit Protection Service, MyDeposits or the Tenancy Deposit Scheme (England and Wales). If you are letting in Scotland, you can use the Letting Protection Service, Safe Deposits or MyDeposits Scotland.
If a landlord does not protect the tenancy deposit within 30 days, they risk fines up to three times the deposit and may lose the right to serve a Section 21 notice.
Unlike a regular tenancy deposit, a holding deposit is not legally required to be kept under a deposit protection scheme.
When is a holding deposit taken?
We ask for a holding deposit after someone applies to rent a property.
The landlord will put their chosen tenant forward to us and that person will then receive an online form to fill out. This form asks the potential tenant for a bit more information about themselves, including their annual income, credit history and ability to receive a positive reference from a previous landlord.
We ask the potential tenant for these details at this point to make sure they will pass formal references later on. Reference checks require tenants to provide:
- A
previous landlord reference - A
6-year credit check - An
employment reference - An
annual income of 30 times to monthly rent
We use prescreening to flag issues early. Tenants can disclose factors that may affect referencing — for example County Court Judgements or low income. This lets us advise on options, such as providing a guarantor.
For example, if the required income for the property was £20,000, but the tenant earned £18,000 – we would advise the tenant to find a guarantor in order to continue to let the property.
Once the initial application has been processed and approved, the tenant would then receive an online request to pay their holding deposit.
The terms and conditions of a holding deposit should be made clear to the tenant. This ensures they have a full understanding of what a holding deposit is for and will minimise any conflicts later on.
Tenant referencing and all legal paperwork are included in our fixed-fee rent management plans (starting from £59 a month). Take a further look here.
Is a holding deposit legal in Wales and Scotland?
A holding deposit of one week’s rent is legally permitted in England and Wales, but not in Scotland. Tenants of Scottish properties can only be asked to pay a tenancy deposit.
Holding fees and reference checks
Once the holding deposit has been paid, the team will then carry out formal tenant references.
- If the tenant passes referencing, they can sign the tenancy and set a move-in date.
- Should they fail, the holding deposit becomes relevant.
- Failed references usually happen because someone supplied inaccurate information during the initial application.
These circumstances are costly and time-consuming for landlords and their letting agents: the tenant may have to review their details and be referenced again, provide a guarantor, pay their rent in advance or simply not proceed with the property.
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Why do we ask for a deposit and when is it retained?
Simply put, the holding deposit protects landlords (and agents) from wasted time and costs when an applicant pulls out or gives false information.
If a potential tenant knowingly provides inaccurate information and consequently fails reference checks, the deposit is likely to be retained. Similarly, if a tenant submits an application, proceeds to referencing but then backs out of the property at short notice, they are unlikely to get their holding deposit back.
If – for whatever reason – the landlord chooses not to proceed, the deposit is returned to the tenant.
We have a duty to protect all tenants that come our way – not just landlords. Our team follow strict security measures and identification processes to verify the legitimacy of all properties and protect tenants from fraud.
When does the tenant get their holding deposit back?
If everything runs smoothly – applications are approved, references are passed, and agreements are signed – the tenant will get their entire holding deposit deducted from their first month’s rent.
How are holding fee disputes solved?
We handle disputes on a case-by-case basis. As each situation is different, our team will assess the details of the case to make an informed and fair decision.
Some deposits will be distributed between the us and the landlord, depending on the costs incurred and to whom.
Is a holding deposit a tenant fee?
No, it isn’t. A holding deposit is not a fee charged to the tenant. It’s a safety measure put in place to protect the landlord – and us, or whoever their letting agent is – from financial loss.
With the Tenant Fee Ban coming into force in 2019, it’s understandable why many tenants – and landlords – would assume that it is no longer legal for tenants to be asked to put forward a holding deposit. However, as the tenant will get their deposit back, it is not considered a fee and is completely acceptable – and encouraged – under the law.
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