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Holding deposit for a rental home

How do Holding Deposits Work?

30 June 2020 Simon Banks Read time: 3 min
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Simon Banks

New renters are often unfamiliar when it comes to holding deposits. So it can sometimes come as a surprise when they're asked to pay one. Even seasoned renters get caught out by them every now and then. The holding deposit can be a tricky aspect of renting that seems like it's thrust upon you.

Some people mix them up with security deposits; others have no idea what they're for and are therefore suspicious about paying them. If you happen to be a renter who thinks twice before paying a holding deposit, we've got some good news for you.

In this article, we'll explain all the details behind a holding deposit, including why and how they are simply a formality of renting. So, read on, and discover everything you need to know about paying holding deposits.

What is a holding deposit?

Finding a rental home can be euphoric, especially if it comes after a long, hard property search. As soon as you've found somewhere and had an offer accepted, you need to go through the process of renting. This includes undertaking credit and reference checks and signing the tenancy agreement.

Before going through those checks, you'll need to pay a holding deposit But it should only be placed after the rental terms are agreed. That includes:

  • Move-in date
  • Terms of the tenancy agreement (AST)
  • Amount of rent
  • Tenants moving in
  • Fixed-term of the tenancy
  • The rental period

Holding deposits typically amount to one week's worth of rent. So a £1,500 per month property requires a holding deposit of £346. Once the agent or landlord receives the deposit, they'll remove the property from the market so that no new renters can enquire.

Essentially, the holding deposit reserves your potential new home while you go through all the details related to renting a home. And once you've passed credit checks and signed the AST, you're ready to move into your new place. At this point, the holding deposit will be deducted from your first month's rent (more on this later).

Why do I need a holding deposit?

Remember where you found your property (perhaps it was even on Movebubble)? Lots of renters also probably saw it, and many of them may have viewed it too, either physically or via video. And that property was also likely advertised across plenty of websites.

With all those eyes on it, there's bound to be a lot of ongoing interest, especially if it's a high-quality home. After agreeing on a deal, you want to stop those prying eyes from looking at your place-to-be. And paying a holding deposit does just that. Think of it as paying a reservation fee to make sure that it's yours and no one else's.

Do I have to pay a holding deposit?

There's no official legislation that says you need to pay a holding deposit, and a smattering of landlords may not even ask for one. Some Build-to-Rent operators also offer holding deposit-free renting. 

Money on windmill sticks

However, it's common practice to pay holding deposits in the rental market. If you refuse to pay one, the landlord has every right to renege on the agreed offer and let it to another renter. Paying a holding deposit is a form of guarantee that you will move into the property should referencing go smoothly.

Will I get my holding deposit back?

If all goes well, you will get your deposit back, though there are different methods for which you'll receive it. You will need to pay one month's rent upfront if you sign the AST and successfully move into the property. The holding deposit is then deducted from the first month, meaning you would only pay a further £1,154 for a £1,500 per month home.

Should you fail the reference checks, are unable to find a guarantor, or the landlord decides not to go ahead with the deal, you will also be liable to receive the full amount of your deposit back. Should anything go wrong with the rental before you move in that isn't your fault, you're entitled to your holding deposit.

However, you won't get your holding deposit back if you are the one who decides against moving in. The landlord has the right to keep the deposit as compensation for the time the property was off the market while checks were taking place.

Are holding deposits the same as a security deposit?

Holding and security deposits often get confused, but they're not the same. A holding deposit secures the property for you, while a security deposit is a figure that amounts to five week's worth of rent which the landlord places in a security deposit scheme. The holding deposit is automatically deducted from the first month's rent. But you won't get a security deposit back until you leave the property. 

Holding deposit delights

Having a good understanding of holding deposits will help you navigate the rental process with more confidence. The next time an agent asks you to pay the holding deposit, you'll know what they're talking about, safe in the knowledge that you'll get it back as long as you don't pull out of the rental agreement.


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