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Deposit protection schemes – what's changing?

Posted on 2016-03-17

Tenancy deposit protection – where tenants' deposits are protected with one of three Government-approved schemes – became a legal obligation in 2007.

The three schemes to which the Government has given its backing are The Deposit Protection Service (DPS), The Tenancy Deposit Scheme (TDS) and mydeposits.

There are two types of deposit protection scheme – insurance-backed and custodial.

Insurance-backed schemes allow landlords or their agents to keep hold of the deposits themselves in exchange for an insurance fee, while custodial schemes are free but the schemes take receipt of the funds.

Most landlords and agents have their preference for one or the other as both have their pros and cons.

Traditionally, custodial schemes are perceived as safer because they hold the deposits, while insurance-backed schemes are seen to be a quicker way to release tenants' funds as they are already in the agents' or landlords' possession.

However, all the schemes have developed since their introduction and the speed and safety of tenancy deposit protection has improved as it's become an industry standard.

There's been some changes to the three schemes in recent months and so we've taken the opportunity to provide an update.


This scheme was launched by the National Landlords Association (NLA) in partnership with insurance firm Hamilton Fraser.

Originally it operated solely as an insurance-backed scheme, however in November it was announced that mydeposits will be launching a custodial deposit protection scheme in April this year.

At the time of the announcement, mydeposits' chief executive Eddie Hooker, commented: “We’ve been hopeful of winning the contract for some time and have already begun an exciting and ambitious reboot of mydeposits.”

“We’re taking a fresh look at deposit protection and are investing in our systems and processes to create a faster, smarter scheme designed to remove delays and problems associated with deposit protection.”

“We are delighted that landlords and letting agents will soon have a genuine choice of which custodial scheme they use.”

mydeposits also announced in July last year that it was allowing letting agents to join the scheme online in an effort to cut down on paperwork.

Kate Hayes, mydeposits' business development manager, said that the online sign up facility would dramatically reduce the time spent on the set-up process, consequently allowing agents to protect their landlords' deposits almost instantly.

mydeposits also recently began operating as the first tenancy deposit protection service in Jersey.

The Tenancy Deposit Scheme (TDS)

TDS, which currently holds over a million tenancy deposits, was originally set up by the Association of Residential Letting Agents (ARLA) and has been supported by the Royal Institution of Chartered Surveyors (RICS) and the Residential Landlords Association (RLA).

Similarly to mydeposits, the Tenancy Deposit Scheme announced in November that it had been granted Government approval to launch a custodial deposit protection scheme alongside its existing insurance-backed product.

TDS says that landlords and agents will be able to use one or both types of protection and will be able to switch between them mid-tenancy.

The Dispute Service is another arm of TDS. It operates TDS Northern Ireland, which has a 75% market share, and is heavily involved in SafeDeposits Scotland, which holds over half of Scottish tenancy deposits.

Commenting on its introduction of a custodial scheme, TDS chief executive Steve Harriott said: "We are delighted to extend our established experience to custodial deposit protection in England and Wales. This is a great step forward which will benefit agents, landlords, and tenants, and offer valuable new flexibility to suit the needs of members.”

"Until now, agents and landlords in England and Wales have not had a choice of custodial deposit protect schemes and we look forward to offering our alternative from the 1 April 2016."

The Deposit Protection Service (DPS)

In November, the DPS announced that it had renewed its contract with the Government to run an authorised tenancy deposit protection scheme.

Since deposit protection became mandatory in 2007, the DPS provided the only custodial scheme in England and Wales.

That's now all set to change as TDS and mydeposits introduce custodial schemes in April this year.

The DPS' on-going presence as a custodial scheme provider was never guaranteed, though, as it confirmed that it had to submit its renewal tender to the Government in April 2015.

The DPS also has an insurance-backed scheme but it's relatively small when compared with the custodial operation, holding around 25,000 deposits as opposed to 1.26 million.

“I’m delighted that the Government has again chosen to entrust us with this substantial responsibility,” said DPS managing director Julian Foster at the time of the renewal.

“With the rental sector expanding and evolving, the DPS will continue to play a leading role within the industry, focusing on rapid deposit repayment; clear, regular communication with landlords and tenants; and the provision of the best support, whether online, over the phone or in person.”

As we move towards a decade of mandatory deposit protection, it's promising to see that all three schemes are still looking to develop and improve their offering.

It's also a positive step that from April, all three schemes will now offer an insurance-backed and custodial option – giving agents and landlords the widest possible choice when it comes to deposit protection.

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