When applying to rent a property, you’ll often come across the term holding deposit, sometimes called a holding fee or reservation deposit. For many tenants, this is one of the first financial commitments made during the rental application process. And for landlords, it offers a level of reassurance that an applicant is serious.
But what exactly is a holding deposit, how does it work, and what happens if an application falls through? Whether you’re a landlord or a prospective tenant, understanding the rules can help avoid confusion later.
Understanding the holding deposit
A holding deposit is a payment made by a tenant to reserve a rental property while referencing checks and paperwork are completed. It shows a genuine commitment to rent the property and allows the landlord or agent to take it off the market while progressing the application.
In most cases, the amount is capped at one week’s rent. This payment is governed by strict rules, including when it must be returned or under what conditions it can be withheld.
Related: Private tenants’ rights: Everything you need to know
Is the holding deposit refundable?
Yes, holding deposits are generally refundable, but it depends on how the application proceeds.
If the tenancy goes ahead, the holding deposit is usually deducted from the first month’s rent or used as part of the initial move-in costs.
If the tenancy doesn’t go ahead, the outcome depends on who withdrew and why:
- If the landlord pulls out, the holding deposit should be refunded in full.
- If the tenant changes their mind or provides misleading information, the landlord may be entitled to keep it.
Clear communication, honesty during referencing, and timely document submission are key to avoiding a holding deposit not returned scenario.
Related: What is a rent guarantor?
Holding deposit vs tenancy deposit
Although they sound similar, a holding deposit is different from a tenancy deposit (also called a security deposit).
The holding deposit is paid before the tenancy agreement is signed, essentially to reserve the property.
The tenancy deposit is paid after signing the agreement and is held throughout the tenancy to cover any damages, unpaid rent, or breaches of contract.
Related: Do tenants have to pay for repairs? A guide
Landlords must protect tenancy deposits in government approved deposit schemes, but the holding deposit doesn’t need to be protected in the same way unless it converts into part of the tenancy deposit later.
Rent deposit schemes and legal protections
Once a tenancy begins, the tenancy deposit must be placed into one of the tenancy deposit protection schemes. These schemes safeguard the tenant’s money and offer dispute resolution if disagreements arise at the end of the tenancy.
Although holding deposits aren’t subject to deposit protection rules during the application stage, they are still covered by legal guidelines, meaning landlords must be transparent about what the payment covers and when it will be refunded.
The role of ASTs and rent calculations
Most private rentals in the UK are set up as Assured Shorthold Tenancies (ASTs). This standard agreement outlines the length of the tenancy, rent amount, and both parties’ responsibilities.
When preparing to pay rent, tenants should understand how rent is calculated. Many properties are advertised by the week, but rent is paid monthly, so it’s important to know how calculating monthly rent works.
A simple way to calculate this is:
(Weekly rent × 52) ÷ 12 = Monthly rent
Having this clarity ensures no surprises when preparing move-in funds.
What happens if the application is unsuccessful?
Not all rental applications are approved. A tenant application process typically includes tenant referencing checks, income verification, and credit assessments. Landlords may also carry out a landlord credit check to ensure the tenant can meet ongoing rent payments.
If the tenant has provided accurate information and the landlord rejects the application, the holding deposit should be returned in full. However, if the applicant fails to disclose relevant facts or delays the process unreasonably, the deposit may be forfeited.
Understanding the grounds for a holding deposit not returned situation is vital for both parties.
Rental application screening and market trends
With high demand in many areas, rental application screening has become more thorough. Landlords want reassurance that tenants are reliable and financially stable, while tenants are increasingly expected to move quickly and be well-prepared when applying.
Recent rental market trends show a competitive environment where holding deposits are more common, particularly in high-demand locations. Being prepared with documents, references, and funds can help tenants secure their chosen property and avoid delays that could risk losing the home.
Bringing it all together
For landlords, a holding deposit offers confidence that a tenant is serious. For tenants, it signals intent and secures the property during the application stage. But like any part of the rental process, it comes with responsibilities on both sides.
For expert support on all things renting and letting, contact your local Whitegates branch today.
