“We are missing out on £80m each year”: Why landlords should pay interest on tenants’ deposits

Renters are richer than they think. Image: Getty.

One of the consequences of The Rent Being Too Damn High is that private tenants have barely anything left over at the end of the month to put aside for a rainy day – let alone a home they can own. Last year’s English Housing Survey uncovered the astonishing finding that two thirds of the private renter population have no savings or investments.

Even if you’re fortunate enough to be able to save, the rewards for doing so are pretty meagre. To get a rate as generous as 2.5 per cent, you need to lock your money away for effectively as long as you’re a renter, with Barclays’ Help to Buy ISA (with an extra bonus from the government if you actually buy a house).

But even for most of the 66 per cent without savings, there’s another pot of money that’s held on the same basis but attracts zero interest whatsoever: the tenancy deposit.

Tenants hand over this sum, usually worth between four and six weeks’ rent, at the start of the tenancy to pay for any damage they cause or unpaid rent when they move out. The cash is either held by the landlord or letting agent and insured through a protection scheme, which arbitrates any disputes, for as little as £9.50; or it’s lodged with the scheme itself (known as custodial).

More than £4bn of tenants’ money is protected across the various schemes. Because you have to put down a deposit on a new tenancy before you get your old one back, it means the funds are incredibly stable, and should therefore attract a reasonable interest rate, even after deducting the costs of running the schemes. Yet few tenants see any return: Generation Rent estimates that we are missing out on £80m each year.

When we asked renters if they got interest when their last tenancy ended, just 2 per cent said yes. The government has already recognised this unfairness and asked custodial schemes to start distributing it. They have not – though, to be fair, the government has retained restrictions on how they can invest the money.

The custodial scheme is free for agents and landlords to use. Yet information we obtained through Freedom of Information revealed that most deposits are insured, and the average value of an insured deposit is £1,240: £373 higher than the average of £867 held in custodial schemes. This can only mean that it is somehow lucrative for agents to pay that small insurance premium, in order to hang on to large amounts of cash.


Our survey found that only 2 per cent of tenants whose deposits are insured are entitled by their tenancy agreement to receive interest. In comparison, one in four agents allocate that interest to themselves. Most tenancy agreements appear not to cover this.

Whatever actually happens to tenants’ deposits, the system is set up to give agents access to an incredibly cheap loan, with no benefit to their creditor. If they go bust, indeed, their creditor gets less than no benefit.

This has prompted some firms to set up deposit-free schemes, where the tenant hands over an insurance premium and can keep the rest of the deposit. But with most tenants getting their deposit back in full, they would be losing money by using such a scheme – and tenants with claims against them continue to be liable for damage and rent arrears.

These schemes are simply creating another poverty premium, taking advantage of those tenants with no savings. We don’t need a deposit system that makes money out of tenants: tenants need to make money out of the system.

That’s why Generation Rent is proposing to scrap the insurance schemes completely and reconfigure the custodial schemes so that the tenant, not the landlord, opens the account. When the tenant pays their final month’s rent, an equivalent portion of the deposit would be made available to put down on their next home (the landlord could still make a claim on the remainder once the tenant moves out). If adopted in the forthcoming Tenants’ Fees Bill, this policy could treble the short-term savings that the letting fees ban would create on its own, reducing the need to borrow or raid savings when moving home.

Personal tenant accounts would also make it much easier to distribute interest. And because less cash physically changes hands, less is needed to distribute between tenancies: £57m, we reckon. That leaves the vast bulk of tenants’ money that could be invested. If £4bn went into building community-led housing schemes, we think 35,000 homes could be built over five years.

That would not only give tenants a decent return on their own money, but it would play a role in bringing down rents, making it easier to save properly – or, to generally have nice things.

Dan Wilson Craw is interim director of Generation Rent.

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What are Europe’s longest train journeys?

The Orient Express was a pretty long train. Image: Getty.

For reasons that aren’t clear even to me, a question popped into my head and refused to leave: what’s longer? Britain’s longest train joruney, or Germany’s?

On the one hand, Germany is quite a bit larger – its area is 70 per cent more than Great Britain’s. On the other hand, Great Britain is long, skinny island and Germany is much rounder – the distance from John O’ Groats to Lands End is over 1,400 km, but you never have walk over 1,000 km to cross Germany in any direction.

And it turns out these factors balance almost each other out. Britain’s longest train, the CrossCountry from Aberdeen in Scotland to Penzance in Cornwall, runs 785 miles or 1,263 km. Germany’s longest train, the IC 2216 from Offenburg in the Black Forest to Greifswald on the Baltic coast, is exactly 1,300 km. Germany wins by a tiny distance.

Except then I was hooked. What about the longest train in France? Spain? Italy?

So I did what anyone would do. I made a map.

The map above was all drawn with the Deutsche Bahn (Germany Railways) travel planning tool, which rather incredibly has nearly every railway in Europe. The data quality is better for some countries than others (the lines in France aren’t quite that straight in real life), and the measurements may be a bit off – it’s not always easy to find the length of a train service, especially when routes can vary over the year – but it gives us a good idea of what the routes look like.

Let’s start with the UK. The Aberdeen to Penzance route isn’t really for people who want to go all the way across the country. Instead, it’s a way to link together several railway lines and connect some medium-to-large cities that otherwise don’t have many direct services. “Cross-country” trains like these have existed for a century, but because they crossed multiple different company’s lines – and later, multiple British Rail regions – they tended to get ignored.

 

That’s why, when it privatised the railways, the government created a specific CrossCountry franchise so there was a company dedicated to these underused routes. If you want to get from Edinburgh to Leeds or Derby to Bristol, you’ll probably want a CrossCountry train.

The usual route is Edinburgh to Plymouth, but once a day they run an extra long one. Just one way though – there’s no Penzance to Aberdeen train. 

The longest train in Germany is weird – at 1,400 km, it’s substantially longer than the country itself. On the map, the reason is obvious – it takes a huge C shaped route. (It also doubles back on itself at one point in order to reach Stuttgart).

This route takes it down the Rhine, the biggest river in west Germany, and through the most densely populated patch of the country around Cologne and Dusseldorf known as the Ruhr. Germany’s second and third longest trains also have quite similar routes – they start and end in remote corners of the country, but all three have the Rhine-Ruhr metropolitan area in the middle.

You’re not meant to take the IC 2216 all the way from north east to south west – there are much more direct options available. Instead, it’s for people who want to travel to these major cities. They could run two separate trains – say, Offenburg-Dusseldorf and Griefswald-Cologne – but making it a single route means passengers benefit from a bit more flexibility and helps DB use its rolling stock more effectively.

France’s longest train exists for a very good reason. Most of France’s high-speed lines radiate out from Paris, and it’s very hard to get around the country without going to the capital. Usually to get from Marseille on the Mediterranean to Nantes near the Atlantic, you’d need to take a TGV to Paris Gare de Lyon station, then get the Métro across the city to Gare Montparnasse.

Once a day though, this TGV avoids this faff by stopping in the suburb of Juvisy and turning around without going into the centre. This lets passengers travel direct between the coasts and reduces the traffic through Paris’s terminals in the rush hour. The exact length of this route isn’t clear, but Wikipedia says it’s about 1,130 km.

Spain’s longest train is very different. This is the Trenhotel sleeper service from Barcelona to Vigo, and it’s pretty fancy. This is a train for tourists and business travellers, with some quite luxurious sleeping cabins. But it is a regularly scheduled train run by the state operator Renfe, not a luxury charter, and it does appear in the timetables.

Being dry, hot and quite mountainous in its middle, most of Spain’s cities are on its coast (Madrid is the one major exception) and as a result the train passes through relatively few urban areas. (Zaragoza, Spain’s 5th largest city, is on the route, but after that the next biggest city is Burgos, its 35th largest,) This is partly why overnight trains work so well on the route – without many stops in the middle, most passengers can just sleep right through the journey, although there are occasional day time trains on that route too if you want to savour the view on that 1,314 km journey.

Finally, there’s Italy. This is another sleeper train, from Milan in the north to Syracuse on the island of Sicily. It goes via Rome and travels along the west coast of... wait, it’s a train to the island of Sicily? How, when there’s no bridge?

Well, this train takes a boat. I don’t really have anything else to add here. It’s just a train that they literally drive onto a ferry, sail across the water, and then drive off again at the other side. That’s pretty cool.

(As I was writing this, someone on Twitter got in touch to tell me the route will get even longer in September when the line to Palermo reopens. That should be exciting.)

So those are the longest trains in each country. But they aren’t the longest in Europe.

For one thing, there are some countries we haven’t looked at yet with very long trains. Sweden has some spectacular routes from its southern tip up into the Arctic north, and although the Donbass War appears to have cut Ukraine’s Uzhorod to Luhansk service short, even Uzhorod to Kharkiv is over 1,400 km. And then there are the international routes.

To encourage the Russian rich to take the train for their holiday, Russian Railways now run a luxury sleeper from Moscow to Nice, passing through France, Monaco, Italy, Austria, Czechia, Poland, Belarus and Russia. This monster line is 3,315 km long and stretches across most of the continent. That’s got to be the longest in Europe, right?

Nope. Incredibly, the longest train in Europe doesn’t actually cross a single border. Unsurprisingly, it’s in Russia, but it’s not the Trans-Siberian – the vast majority of that’s route is in Asia, not Europe. No, if you really want a long European train journey, head to Adler, just south of the Olympic host city Sochi. From there, you can catch a train up to Vorkuta on the edge of the Arctic Circle. The route zigzags a bit over its 89 hour, 4,200 km journey, but it always stays on the European side of the Ural mountains.

Bring a good book.

Stephen Jorgenson-Murray often tweets about this kind of nonsense at @stejormur.


All maps courtesy of Deutsche Bahn.