When renting a property out, landlords recognise that it is important to take a deposit from the tenant and place it in a government-backed tenancy deposit scheme as protection to ensure that any potential damage or unpaid rent at the end of the tenancy is covered.
But raising enough money for a tenancy deposit can be a real challenge for some renters, which partly explains why there is growing appetite for deposit-free renting.
But despite growing enthusiasm for deposit-free renting, it is important that landlords understand how these insurance-based alternative to traditional tenant deposits work before committing to using them.
Nil deposit schemes are a helpful alternative to a traditional deposit as they provide protection for landlords at the same time as helping tenants who do not have big reserves in place to pay a month’s rent and a few weeks deposit up front.
Recent research from Your Move suggests that renters are increasingly interested in alternatives to traditional upfront deposits.
Some 50% of almost 4,000 adults surveyed said they were interested in alternative or insurance-backed schemes, while 70% said having the choice to pay an upfront deposit scheme would influence their decision on whether to rent a specific property.
Neil Cobbold, chief operating officer of PayProp, the lettings payment provider, commented: “It’s clear that tenants' awareness of deposit alternatives is growing and many are interested in how the system could work for them and they could soon become a key piece of criteria for some movers.
“This means now is a good time for letting agents and landlords to carefully consider the options available to them, including the range of different providers and product variations now on the market.”
With a growing number of agents signing up nil-deposit schemes, they are rapidly becoming more commonplace, which is ultimately welcome news for many renters given that research shows that they unequivocally want choices. But as a landlord, do you think the deposit-free rental model a good idea?
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If you can't afford a deposit - you can't afford the rent. If you won't risk your own money as assurance you'll respect my property - you won't be allowed to rent my property. Try the Council.
Spot on, agree totally.
Absolutely right on both counts
The deposit replacement schemes work by making the tenant pay for an insurance in lieu of a deposit, usually at a cost of about one week's rent. This is effectively a tax on the tenancy agreement or indeed a tax on poverty for those with so little money that they can't pay upfront. If the tenant is staying several years, then it may be worthwhile For a tenant who is on a fairly short let or moving frequently, the cost of insuring each new tenancy is soon going to mount up and even exceed a traditional deposit, and this money will stay in the pockets of the scheme providers rather than being returned to the tenant at the end of each tenancy at nil or very little cost to the tenant.
The only tenants who would benefit in the long term are going to be those bad tenants who would have had significant deductions at the end of the tenancy.
A better and more equitable arrangement would be for the agent or landlord to have a blanket or bulk insurance scheme, the cost of which is then split between the tenants either via a small fee (if legally permitted) or paid for by the agent/landlord and recouped via a slightly higher rent.
As a small landlord I have often taken a different approach. I sometimes find myself with a perfectly decent person who has been kicked out of a relationship and through no fault of they own their clothes and a few pounds in the bank are their only possessions. In this situation I can take advantage of the flexibility my position affords to allow them to pay what they can afford up front and they agree to catch up over the first few weeks, enabling me to gain a good tenant, and the tenant to have a place to stay, with no extra costs incurred other than taking a temporary risk on the tenant.
Both sides have to have , ' some skin in the game '
The Landlord does, usually to the tune of £ 100 + k
Landlords can't buy houses to rent with 100 % mortgages and such little reference as to their financial capability as provided by a Tenant,
The way the Govt are heading with abolishing Sec 21, a tenant is going to need more than a Deposit, - Guarantors will be the norm. ( even if that has to be the more-burdened Local Authorities )
If a LL takes 5 weeks deposit which is inadequate then a more normal 2 month's rent as deposit is preferable which is now banned
So could a tenant pay for the 3 extra weeks the LL requires by a cheaper premium deposit insurance policy!?
I never took more than 2 month's rent as a deposit for fear of creating a Premium Tenancy.
But I still want 8 weeks rent as a deposit.
Or would a LL still take 5 weeks deposit as well as requiring the tenant to take out 12 weeks deposit protection.
There doesn't appear to be any restrictions on how much deposit is protected.
Bearing in mind how long rent arrears can go on could we eventually gave the situation where the LL is able to take 5 weeks rent as a deposit and a deposit insurance policy which could cover an extra 12 weeks which could cover 17 weeks of rent default.
That would be even better than the old 2 month's rent as deposit.
Bearing in mind how long it takes to evict rent defaulting tenants having 17 weeks of total deposit protection would be great.
Of course not sure what the claim process is which is usually when these insurance schemes fall apart.
I had direct experience of a RGI claim and the insurer tried to wriggle out of the claim.
Fortunately I had researched what a claim required so the insurer was unable to catch me out.
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