Rental Deposit Alternative Scheme Central Housing Group

Rental Deposit Alternative Scheme Loans

A new rental deposit alternative scheme claims that some renters have to resort to high-interest payday lenders in order to afford a deposit.

Hamilton Fraser’s Ome scheme says that while many tenants can afford the typical UK deposit of £1,299 – either out of their own income or savings, or by borrowing from friends or family – some have to resort to more aggressive loan sources.

“They are forced to borrow the money from a lender and stomach the additional interest on top of the deposit itself” says Orme.

The service looked at the additional costs of a credit card, personal loan and payday loan and found that the interest ranged between £44 to £2,794 depending on rate and credit score over a one year term.

Of those three options, using a credit card with a low rate of interest is the most cost-effective way to borrow for the rental deposit alternative scheme and at an average rate of 6.4 per cent it would cost tenants £112 a month to pay back over 12 months, with £44 in interest.

A medium rate at an average of 18.9 per cent would set them back £119 a month with £126 paid in interest, while a higher rate at 36.3 per cent would come in at a monthly cost of £128, paying £231 in interest.

Prospective tenants with a good credit score could secure a personal loan at a rate 11.4 per cent; that would cost £115 per month with £78 in interest.

An average credit score would cost tenants £118 a month at a rate of 16.7 per cent but a poor credit score would cost around £122 a month. For those with medium to poor credit scores, a credit card, while still fairly expensive, would see them pay less interest in the long run.

Payday loans have become notorious for their high rates of interest.

Unsurprisingly, therefore, a tenant borrowing £1,299 and paying it back over the course of a year could face a rate of 292 per cent, paying a hefty £341 a month and a huge lump of interest at £2,784.

“For many tenants, the financial hurdle of a deposit is more of a cash flow problem than an affordability issue and as a result, many are forced to borrow the money in order to secure a rental property. This large upfront obstacle in the way of a tenant deposit is one of the driving reasons we launched Ome in order to address the issue of cash flow for the UK” claims the service’s founder, Matthew Hooker.

Blog Post from Letting Agent Today

See details of our Guaranteed Rent Scheme here

If you have any comments, please email the author of this article and click on the link above

Generic selectors
Exact matches only
Search in title
Search in content
Search in posts
Search in pages



Registered Office: Woodgate Studios, 2-8 Games Road, Cockfosters, Hertfordshire, EN4 9HN | Registered in England and Wales | Registered Company No. 3961047 | VAT Registration No. 752 6015 48