My Lords, I thank the noble Lords who have participated in this debate. In particular, I thank the noble Lord, Lord Shipley, for moving Amendment 9 and the noble Lord, Lord Kennedy, for speaking to his Amendment 10.
I have listened carefully to the concerns about the level of the deposit cap and I understand them. However, there is a balance that must be struck between providing tenants with greater affordability and ensuring that landlords have adequate financial security for their assets—points just touched on by my noble friend Lady Gardner. For that reason, I cannot agree that the cap should be lowered to four weeks’ rent. As we have heard, a cap at four weeks’ rent might encourage tenants to forgo their final month’s rent. Even the CAB statistics—which, as the noble Lord, Lord Best, said quite fairly was a survey of tenants—puts the number of tenants doing so at 2%. Therefore, there is still an issue there. I remind noble Lords that this is setting an upper limit; it is not setting a norm. Indeed, there is no evidence to suggest that the eight-week period in Scotland has become very much the norm; it is regarded as an upper limit. I will shortly come to reasons why the upper limit of six weeks might be needed, and I take on board the very fair points that the noble Lord, Lord Shipley, made about the need for that.
The Housing, Communities and Local Government Select Committee also recognised the risk when it looked at this issue. It is worth mentioning that final month’s deposit. Using data from the tenancy deposit protection scheme, our best estimate is that if deposits were capped at six weeks’ rent, approximately 1.4% of landlords taking deposits would see a median loss of £89 per tenancy that they would not have been subjected to otherwise. These costs would be borne by landlords—those who currently require tenants to pay more than six week’s rent in deposit—at the end of the tenancy when the deposit does not fully cover their claim.
In contrast, a cap of four weeks’ or one month’s rent would lead to a loss for 5.2% of landlords of £200 on average. That is based on deposit scheme figures. As a result, landlords may be less willing to absorb increased costs because of the number and size of deposits affected by a four-week cap. Tenants could therefore see greater increases in rent, which would decrease the overall net benefit of the legislation. Also, as I have touched on previously, lowering the deposit cap to four weeks’ rent could hurt pet owners, those who live abroad and those with a poorer financial history. These groups often pay a higher than average deposit to provide landlords with the assurance they need, so they are worth bearing in mind.
I believe that the cap of six weeks’ rent provides the additional financial security and flexibility that landlords need, which is integral to retaining investment and supply in the private rented sector and benefits tenants. Like other noble Lords, I recognise that good landlords and good tenants are in the great majority, but the cap seeks to preserve that balance. I reiterate that the cap of six weeks’ rent is an upper limit. Data from the tenancy deposit protection scheme informs us that most landlords request a deposit of around four to five weeks’ rent. That is in the great bulk of cases but,
as I have indicated, in some cases it may be appropriate to go higher and not going higher may make it difficult for people with pets, for example, to get tenancies. I would put it no higher than that. I remind noble Lords that Scotland has capped tenancy deposits at no more than eight weeks’ rent and there is no evidence to suggest that deposits have risen to meet that cap. It is an upper limit, not the norm.
We will also use the guidance to encourage landlords to consider on a case-by-case basis when to take a tenancy deposit and the appropriate level of that deposit. It is also important to remember that unlike letting fees, which are non-refundable, the deposit is retained by the landlord only in instances where the tenant breaches their obligations under, or in connection with, the tenancy. The deposit is the tenant’s money and landlords must provide appropriate evidence where they believe that they are entitled to retain any of that deposit. I therefore suggest that it is the appropriate level.
More broadly, on the fair points made by the noble Lord, Lord Kennedy, particularly about passporting, I want to ensure that tenancy deposits work for both landlords and tenants. That is why we established recently a working group to look at the merits of innovative and more affordable approaches to tenancy deposits. This includes deposit passporting, where a deposit can be transferred from one tenancy to another, as proposed by Amendment 2. Members of the working group include landlord and tenant representatives and the three tenancy deposit protection schemes. So far, the group has met three times and is due to report its findings next spring. I will happily provide noble Lords with updates as things progress. That is all the information we have at the moment but if I can provide more information ahead of Report, I will do so.
Many things in relation to passporting still need to be considered. The key concern here is ensuring that landlords can still recover any damages at the end of a tenancy. A great deal of technical complexity would need to be examined, both on the percentage that is passported and on when, and how, liability for providing a tenant with the relevant prescribed information about how their deposit is protected should be passed from one landlord to another. I am sure noble Lords will agree that we need to do this properly. As I said, I am keen to ensure that we do it but the report from the relevant working group is not due until the spring. However, I will write to noble Lords to provide more information about the working group ahead of Report, in so far as we have more information. I will be happy to provide noble Lords with an update once the working group has reported its findings in the spring. In the light of those assurances, I hope that the amendments in this group will not be pressed.
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