It’s fair to say that while both landlords and tenants have plenty to think about at the start of a tenancy agreement, deposits can cause the biggest headaches for those moving in.
With most deposit requirements pitched at the equivalent of one month or six weeks’ rent, finding cash that often runs into thousands of pounds just to get the keys can be a big ask for many renters.
And if you’re moving from one rental to another, the painful crossover between receiving your previous deposit and having to stump up for your new one can often mean borrowing or digging deep into the savings you vowed you’d never touch.
So, the news that the government has called for a study into the benefits of deposit free renting would have been music to the ears of tenants everywhere… wouldn’t it?
Well, perhaps not. Already Martin & Co managing director Louise Griffiths has questioned the government’s decision, claiming deposit free renting will actually end up costing tenants more in the long-run.
The piqued interest in zero deposit schemes comes around 10 years after the last big piece of tenancy deposit regulation was introduced: Tenancy deposit protection.
But what could nil-deposit renting actually mean for landlords, as well as tenants?
What are zero deposit schemes?
Essentially they are what they say on the tin, although the process varies slightly from scheme to scheme.
‘Zero Deposit’, which is backed by Zoopla, sees tenants buy an insurance policy for the equivalent of one week in rent, which in turn protects the landlord for up to six weeks’ worth of rent.
Tenants, though, despite not paying an up-front deposit in the traditional sense, remain liable for financial loss or damage due to the landlord and, most importantly, do not get their policy money back at the end of the agreement.
Any claims found in the landlord’s favour at the end of the tenancy are paid by ‘Zero Deposit’, which then seeks reimbursement from the tenant. Those who don’t pay could then be faced with a visit from a debt collection agency.
A service called ‘Flatfair’, meanwhile, sees tenants pay a week’s worth of rent which covers the landlord for 12 weeks rather than the six offered by ‘Zero Deposit’.
What’s wrong with traditional deposit protection schemes?
Nothing, really. Since its introduction in 2007, deposit protection has seen disputes between landlords and tenants drop to an almost non-existent 2%. More often than not, deposits are returned to the departing tenant in full under the protection scheme, meaning the ongoing issue with traditional deposits essentially comes down to that all important crossover period between a new tenancy beginning and an old deposit being returned – a costly affair indeed for most tenants.
So nil deposit schemes mean less money up front?
Indeed. Supporters of zero deposit schemes claim they will make renting more affordable for those already hard-pressed for cash between tenancies.
With the average deposit in the UK currently sitting at £1,161 – an increase of 18.6% in the past five years – there can be no argument that zero deposit schemes result in lower up-front costs for tenants.
But those against the implementation of such schemes, including Martin & Co’s Louise Griffiths, suggest they will end up costing tenants more in the long run as zero deposit policies are non-refundable, whereas tenants who comply with all their tenancy obligations more often than not receive their entire up-front deposit back at the end of their agreement.
Can anyone qualify for a zero deposit tenancy?
No. Only those who pass a series of checks and whom are entering into a standard Assured Shorthold Tenancy agreement are eligible. Moreover, zero deposit schemes are not available on all properties and are subject to landlord approval.
So, what’s the verdict?
One thing is for sure, there is plenty for both landlords and tenants to think about when it comes to zero deposit schemes.
For the landlord, deposit protection has been in their lives for more than a decade and, generally, works well for all parties. Landlords pondering a change to nil deposit letting need to consider the pros and the cons of doing so.
Yes, it could bring a wider variety of tenants to the renting table and make filling those empty properties quicker.
However, in the case of disputes, landlords can utilise the deposit protection scheme‘s impartial adjudication process, which is free. In the case of nil deposit schemes, claims are handled in an insurance environment, leaving both landlord and tenant at the mercy of the provider’s terms and conditions and potential extra costs.
For the tenant, the opportunity to pay less up front is unquestionably appealing. However, renters need to weigh up the cost of losing a week’s rent forever with a nil deposit scheme against forking out considerably more up front but eventually getting most, if not all, of that money back via a traditional deposit.
If you have any questions about the deposit schemes we use at Martin & Co, your local office will be happy to help.
