Today the Bank of England cut its base rate to 2%. While this will hopefully help the economy there is an unintended consequence that will affect many tenants. Tenancy Deposit Protection was introduced by the Housing Act 2004. One of the three approved tenancy deposit protection schemes was the government-backed Deposit Protection Scheme (DPS). The Housing (Tenancy Deposits) (Specified Interest Rate) Order 2007specified that this scheme would pay interest at 2.32% below the Bank of England base rate. With the rate cut this means that the DPS is now paying interest at -0.32%. Effectively, tenants will find themselves paying interest to the scheme at 0.32%. While it is unlikely that this will occur and the government will hopefully act to resolve the problem it is nonetheless embarassing.
Meanwhile the primary advantage to tenants of using the DPS, the payment of interest, has now gone. Agents who wish to attract tenants and use one of the other schemes may choose to offer to pay interest to tenants, albeit at a low rate.