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No-deposit sector continues to grow– what do landlords need to know?

Posted on 2019-10-17

The rental deposit industry has been evolving in recent years, with landlords and tenants offered an increasing number of alternatives to traditional deposits.  2019 has arguably been the year when the deposit alternative sector has really taken off. With that in mind, here's an update covering everything landlords need to consider...


How do no-deposit schemes work?


An alternative to the traditional deposit, a deposit-free option sees tenants pay a one-off insurance fee.  The fee the tenant pays is likely to be equivalent to one week's rent (approx. £250), compared to a conventional security deposit which, although now capped at five weeks' rent for annual rentals under £50,000, could still cost in excess of £1,000.  

No-deposit schemes offer insurance policies which similarly render the tenant responsible for damage or loss to your property, as well as removing possessions at the end of a tenancy, any unpaid rent or reconnecting utilities if required. Your tenants will be required to pay their one-off insurance fee on or before the tenancy commences and it will cover them for the duration of their contract.

At the end of a tenancy, landlords can pursue repayments for the costs outlined above via the insurance company, which will then go direct to the tenant to recover any funds required. As with traditional deposits, landlords and renters can dispute costs at the end of a tenancy through an alternative dispute resolution (ADR) service run by one of the tenancy deposit protection schemes.


No-deposit options growing in popularity with renters


As the deposit-free sector has grown in size, more tenants have become aware of what is available to them and how it works.  Earlier this year, a survey of almost 4,000 tenants by Your Move revealed that deposit alternatives are growing in popularity with the renter population.  The research revealed that over half of those taking part would be interested in an alternative approach to traditional tenancy deposits.   

Alternative no deposit update image 1

Meanwhile, more than half of the respondents who fell into the 'budgeting family' (aged 25-44 with children at home) or 'reconciled with renting' (aged 45+ and renting due to personal circumstances) categories made clear that they were interested in no-deposit schemes.  Interestingly, some 70% of those taking part said they would be influenced by having the choice of no-deposit schemes when deciding whether to rent a specific property.

This research is some of the first to be carried out on the fledgling sector and it shows that at the very least renters seem keen to have a choice of both a traditional deposit and deposit alternative when moving into a new home.  It will be fascinating to see how tenant and landlord attitudes towards deposits continue to develop over the coming years. 


What’s been going on in the no-deposit sector?


There have been plenty of developments in the burgeoning no-deposit sector in recent months as the various providers jostle for position.  In June, a leading provider flatfair looked to get one step ahead in the Build to Rent sector by signing up three agencies that specialise in this market. 

In July it announced a partnership with the UK arm of global property consultancy CBRE.

 Alternative no deposit update image 2


Should you be offering no-deposit alternatives to your tenants?


As the number of no-deposit schemes available continues to grow, and more tenants expect the option of a deposit alternative, it's certainly something all landlords should be aware of.  You'll need to work out if you're comfortable with the insurance-style payment structure, as well as if it's something that is of interest to your tenants.  If so, it may be worth speaking to your managing agent.

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