What do you think about ‘bond guarantees’?

From 7 May 2018, landlords in the ACT now have the option to ask for a ‘bond guarantee’ instead of a bond. This change might take you by surprise, and it’s not exactly clear what it will mean for peolpe who rent. We want to provide an update on what’s coming and hear your views or concerns.

Instead of asking for a bond, landlords can now ask for a 'bond guarantee'. This is where a third-party provides the landlord with a guarantee that acts as a bond - the provider says "if there is damage, we'll pay you to cover it." The provider would then recover the cost of the payout from the renter. The provider makes a profit from this by charging a fee. Rather than lodging a bond, the renter pays this fee.

Important: this isn't insurance. With insurance, you pay a fee, and if there is a claim the insurer covers the costs of the claim. With these products, the renter pays a fee, but if there is a claim from the landlord, the renter is still liable to pay out that claim. The fee just covers the "guarantee", not actually the payout itself.

What's in this for landlords? The idea is that they get faster, easier payouts from the third-party provider than they would through a standard bond process. In addition, some of the providers plan to rate and review tenants through this process - potentially offering landlords greater confidence that they are leasing to the right sort of person. Finally, some providers offer referral fees - so the lessor gets a sweet little kickback. And we all know that landlords are doing it tough, hey.

When property investors complain about their struggles.

Now, it makes sense to question if this is good or bad for renters but, the sad fact is, it doesn’t really matter. Canberra's vacancy rate is only 0.6%. This means that there simply aren't enough properties out there for renters. So if you apply for a place, and the landlord wants you to pay a fee for a 'bond guarantee', it’s not like you really have a choice. 

This is the most concerning thing about the whole affair: this system gives landlords more options, while renters won't be able to choose. And renters who might prefer to lodge a cash bond (with no out of pocket expenses) could instead end up paying an annual fee.

That said, some renters might prefer this. We know that bonds are a major hassle: that it's hard to come up with the cash, that it takes too long to get them refunded, and that sometimes you need to come up with a second bond before you've even got your first one back. It's a flawed system, and it makes life too hard for renters.

When it's been weeks and your landlord still hasn't refunded the bond.

But, despite the potential upsides of bond guarantees, it’s undeniable that they mean new upfront costs for renters. They exist to give landlords more security - and yet they are paid for by renters. And while it can be hard pulling together the cash for a bond, the ACT already offers interest-free bond loans to eligible renters.

So what do you think? Do you see this as an easier, more convenient way to rent a property? Or are you worried it will just make renting even more expensive? We’ve been discussing these matters with key decision-makers, and we’d love your thoughts.

You can comment below, in the Canberra Renters Facebook group, or on our Facebook page.

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