17^th Jun 2019

A lettings payment provider urges all landlords, lettings agents and tenants to become fully conversant with how the many deposit replacement systems operate before they decide upon which to use.

Deposit replacement schemes, in many cases are labelled as zero deposit schemes, offer tenants the option to pay a non-refundable fee, which is usually the equivalent of one week's rent, instead of the usual sector's upfront security deposit that can be refunded at the end of a tenancy.

Neil Cobbold, chief operating officer of provider, said: “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.”

The deposit scheme is essentially an insurance guarantee when tenant's causes damage to furnishings or the property so landlords can receive compensation

Recent research from Your Move shows that tenants are very interested in being offered alternatives to the historical upfront deposits protection schemes.

Nearly half of the 4,000 renters that took part in the research said that they would be more interested in different options such as insurance based schemes, rather than the usual deposit protection schemes, with 70% saying that dependant on how much money needs to be paid upfront is one of the most important factors as to whether to rent a property.

The service provider says that as there are increasing numbers of alternative deposit schemes, it is very important for agents to understand all of the options' procedures, so they can to tell their landlords and renters.

Cobbold added: “Some of the key things agents need to look out for is the product’s level of cover and who the insurance policy is underwritten by.

“It’s also vital to consider how deposit alternatives fit into the tenancy process and how the system will work at the end of a tenancy if the landlord wants to charge the tenant for damage or missing items.

“Whether you’re an agent, landlord or tenant it’s essential to do your research to make sure you're aware of the benefits and drawbacks to deposit alternatives. The new choices available can only be a good thing if everyone involved fully understands what they are agreeing to.”

The provider's suggestion is perfect timing as the Tenant Fees Act, which came into force on June 1st, restricts fees that agents will be able to charge tenants.

David Cox, chief executive of a lettings agents body, commented: “It is important for agents to ensure they’ve implemented the correct changes within their business in order to be compliant with the law, and feel confident communicating what the changes mean to clients.

“Breaching the ban can result in a penalty of up to £5,000, and further breaches of the ban will either incur a £30,000 penalty or be prosecuted as a criminal offence with an unlimited fine and a banning order.

“Therefore, it’s vital members ensure they have everything in place to be compliant as time is running out.”


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