Can a Landlord Keep a Holding Deposit After a Failed Credit Check?

A landlord messaged me after an applicant failed a credit check. "They wasted two weeks of my time. Surely I can keep the holding deposit?" My answer was no, not under the rules in England. I've sat where he sat. I once assumed a bad credit report meant the deposit was mine. It didn't. The law in England is the Tenant Fees Act 2019, and it changed how holding deposits work.

A holding deposit is a payment to take a property off the market while you run references and checks. It's capped at one week's rent. You take it so the applicant doesn't shop around and leave you with a void. But that money isn't automatically yours when the checks don't go your way.

The only reasons you can keep a holding deposit

The Tenant Fees Act lists a small number of situations where you can keep that money. They are not vague. They're specific.

The applicant gave you materially false or misleading information, and you relied on it. Example: they wrote £45,000 as their income, you based affordability on that figure, and then their payslips show £22,000. That's misrepresentation. A routine bad credit score is different.

The applicant withdraws. If they change their mind before the tenancy is signed, you can keep the deposit. That one trips up landlords who think they can keep it for any change of heart. No. Withdrawal means the applicant told you they don't want the property anymore, not that the credit check came back poor.

The applicant fails a Right to Rent check. That's a separate check on immigration status. It has nothing to do with credit. If they fail Right to Rent, you can keep the holding deposit.

The applicant fails to take all reasonable steps to enter into the tenancy. For example, you ask three times for a guarantor's details and they go silent for two weeks. Or they refuse to sign the agreement after you've done everything you're supposed to do. That's on them.

That's the full list. Failure to pass a credit or affordability check is not on it, unless the failure is because they lied about something material.

Credit checks are not a reason on their own

A credit check shows debt and missed payments. An applicant can have a low score and still have been completely honest on their application. The Tenancy Fees Act doesn't let you punish honesty. If they declared their income accurately and you still decided to run the check, the risk of a poor result sits with you.

I used to tell applicants exactly what I'd check and when. I'd say, "This holding deposit is one week's rent. If the credit check comes back weak but you told the truth, I'll return it." Then I did. Two or three times a year I'd refund a deposit I'd rather have kept. That was the cost of running a compliant business.

Deadlines and written reasons matter more than you think

You can't quietly keep a holding deposit. The Tenant Fees Act sets a deadline for the tenancy to be agreed, usually 15 days after you take the deposit, unless you and the applicant agree in writing to a different date. If you decide not to proceed with the applicant, you have to return the deposit within 7 days, unless you have one of the lawful reasons and you tell them in writing.

That written notice has to say why you're keeping it. Miss the deadline, and you lose the right to retain the money even if you'd otherwise have a valid reason. I saw a local landlord get caught this way. He had a genuine misrepresentation case but waited three weeks to tell the applicant. The council found against him and issued a penalty.

What I'd do today

If an applicant fails a credit check and their application was accurate, I'd return the holding deposit the same day. No lectures, no deductions. The marketing downtime is a business cost, not the applicant's debt.

If I suspected false information, I'd gather the evidence, write the applicant a letter stating the specific reason under the Act, and send it within the deadline. I'm not a lawyer, so when something feels complicated I call a housing law specialist. Then I'd move on.

The law in England is clear. A failed credit check, by itself, doesn't let you keep a holding deposit. If the applicant lied, document it and send written reasons within the deadline. If they were honest, send the money back. I'd rather refund a deposit I could have kept than keep one I shouldn't have.