This site uses cookies to provide functionality like user accounts, shopping carts and content personalisation. For more information see our cookie policy.
Though still relatively new to market several companies now offer deposit free renting schemes. This type of scheme can remove the need for a tenant to pay a deposit. It also protects landlords from financial loss from unpaid rent or damage to their property. On the face of it, it's a win-win for all concerned. But is it really? In this article, we'll look at the pros and cons of deposit free renting. Is it really a good deal for landlords and tenants?
The traditional way of renting a property in the UK requires the tenant to pay a security deposit to their landlord. This is usually equivalent to four to six weeks rent. On top of the advance rent payment, this represents a sizable upfront cost for the tenant.
But, as the name suggests, deposit free renting schemes aim to eliminate the need for a large down payment. In effect, it's an insurance plan. There are a small number of schemes available though they do vary in a few details.
Most schemes involve the tenant paying an insurance fee usually equivalent to one week's rent. This is non-refundable. Smaller renewal fees typically up to £30 are payable after a year. Only one of the schemes so far involves the landlord paying the insurance fee.
Although there are minor differences between schemes the general concept is the same. A tenant (less often the landlord) pays a small fee at the beginning of their tenancy. At the end of the tenancy, the landlord will advise the tenant if there are any costs for unpaid rent or damages. The scheme will meet those costs. The tenant will then need to repay those costs to the scheme.
If the tenant disputes the landlords costs an independent adjudicator will make a judgement. If the ruling is in favour of the landlord the deposit scheme will pay the amount of the claim to the landlord. The scheme will then reclaim the money from the tenant.
Not having to find a large deposit on top of their first month's rent is a huge tick in the box for most tenants. It can be very expensive moving to a new rental home. Not having to pay the equivalent of up to six weeks rent will be a big help to tenants who are juggling their finances.
Not having to pay any upfront costs also helps when moving from one rental to another. A landlord doesn't have to return their tenant's deposit until ten days after the end of the tenancy. There will be an even longer wait should there be any disputes over unpaid rent or damage. This means the tenant has to find another deposit for their new property while waiting on the return of the previous sum they paid to their former landlord.
Deposit free renting appears to offer several advantages to landlords. Removing the need to find a large deposit would increase the pool of potential tenants. Not having to wait for a deposit means it should take less time to move the tenant into the property. It would also (in theory) mean fewer void periods and make it easier to check the tenant out at the end of the tenancy. There is also an argument that the insurance aspect of the no deposit schemes gives the landlord greater financial protection than the traditional deposit.
Strangely the biggest disadvantage of deposit free renting is also its biggest apparent benefit. Currently, the vast majority of tenants receive their deposit back in full. But under the new schemes, the fees tenants pay are non-refundable. Even though the initial outlay is smaller most tenants will lose out in the long run.
Another negative is the tenant could end up on the hook for much more than the original deposit they would have paid. They may also have to pay an excess on any claim by the landlord. And if necessary the scheme's providers will take court action to recover the money they paid to the landlord. Tenants could also end up paying additional charges if they make a claim against the landlord and lose in arbitration.
The biggest risk is in the unknown. Deposit replacement schemes are a new way to rent and untested. As with anything new, only time will tell.
Of course, deposit free renting has always been in place in the social housing sector. And some build to rent developments are now returning tenants deposits and switching to a no deposit model. So, deposit replacement schemes may well become more widespread in the private sector in the near future.
Private landlords can find tenants fast by listing their property with MakeUrMove the online letting platform bringing landlords and tenants together.
