How much deposit can I charge?

Most landlords and letting agents take a deposit from their tenants to guard against damage to the property or unpaid rent at the end of a tenancy. It's important to know what you can (and can't) charge for a deposit and how to calculate that, as there are legal limits.

Deposits explained

Before we look at what you can charge, let's look at the different types of deposit, as the rules are different depending on what you're taking the deposit for.

We're going to be talking about two different types of deposit:

1. Holding deposits
2. Security deposits (sometimes called tenancy deposits)

Holding deposits

A holding deposit is a payment the tenant makes to the landlord or agent in order to reserve a room or property. You can only take one holding deposit for a room (or property) at a time. This type of deposit should be refunded in full if the tenant takes the room, or if you decide not to rent to them.

You can only keep it if the tenant decides not to rent the room, gives false or misleading information or fails to pass a 'right to rent' check.

Security (or tenancy) deposits

This is the type of deposit charged to guard against damage to the property or unpaid rent at the end of a tenancy. The deposit remains the tenant's money and should be refunded in full at the end of the tenancy, unless there's unpaid rent or damage to the property. Damage doesn't include 'fair wear and tear to the property' over the course of the tenancy.

If you're letting under an Assured Shorthold Tenancy (AST) you must protect the deposit.

How much can I charge for a deposit?

The rules are slightly different depending on where your property is.

How much can I charge for a holding deposit?

In England and Wales, a holding deposit can't be more than 1 week's rent for the property (or room) in question. In Scotland you can't charge a holding deposit.

How much can I charge for a tenancy deposit?

In England the deposit can't be more than 5 week's rent. This limit applies to ASTs, students in halls of residence and lodgers, providing the rent isn't more than £4,167 a month. Above that the limit is 6 week's rent.

In Scotland the maximum is 2 months' rent. Wales doesn't have a limit.

How to calculate a deposit

Working out how much you can charge seems pretty simple on the face of it, but it's easy to get it wrong without meaning to. As SpareRoom doesn't let you set a limit higher than the legal maximum in your area, it'll save time to know how to do it properly.

If you charge weekly rent, then 5 weeks' rent is just 5 x the rent. Simple. However, if you charge monthly rent then it's (only slightly) more complicated.

Here's how it works:

Monthly rent x 12 ÷ 52 x 5 = 5 week's deposit

Rent x 12 gives you the annual rent, divide by 52 to get 1 week's rent and times that by 5.