No deposit options for landlords and tenants, what are they? Saving for a deposit is one of the most challenging things when it comes to looking for a rental property. According to the Tenancy Deposit Scheme, the average rental deposit in England and Wales in 2018 was £1,110 which would be especially hard to save for if you are already renting elsewhere.
Deposit free renting with housing associations, councils and private landlords via estate and letting agents
In the Social and Affordable housing market, no deposit rental properties have been around for a while. However, now the private rental sector has began to shift towards no deposit rentals also. They are now offering ‘deposit replacement’ options in which an alternative is offered alongside the traditional deposit scheme. As such, the push for alternatives has gathered momentum in recent times, especially with more people now renting. More people are now renting but they are also renting for longer on average, which increases the chances of tenants living in more than one rental home and therefore paying for more than one deposit whilst in the Private Rental Sector.
Deposit free renting or the deposit protection scheme?
These deposit replacement options vary among providers but the main idea is that a more affordable amount of cash, normally the equivalent of one week’s rent, is requested in place of a full deposit. This covers the cost of an insurance policy or membership scheme so that the landlord is covered in the event of rent arrears or damage.
As for the tenant, they may have paid a non-refundable amount, but the upfront cash needed requires significantly less saving and is much more achievable. In addition, many of the schemes offer incentives, such as improved credit scores, to reward tenants for paying rent on time and taking good care of the property.
With more lettings agents now signed up to offer the service; we thought it would be helpful to provide a comparison of the most popular Deposit Free Rent products available and how they work.
Deposit Free Renting Product Choices
Canopy
The tenant or ‘renter’ takes out the insurance which is offered by Canopy in place of handing over a deposit. They also offer their RentPassport to tenants. The Rent Passport is for all Canopy tenants including those who are able to pay a deposit upfront but who wish to make themselves more attractive as a tenant by improving their credit score. Here are the key points:
- The tenant or ‘renter’ takes out the policy.
- Canopy work in partnership with Experian and have developed a RentPassport to track rental bills paid on time, which in turn improves a tenant’s credit score and overall prospects as a renter.
- The RentPassport can be used even if a landlord is not using Canopy.
- The policy costs 5-15% of the deposit value, this is calculated in line with the RentPassport credit score, i.e. the better the passport score, the lower the cost.
- Any claims and disputes are settled independently via a third party.
flatfair
With flatfair, landlords can offer tenants the option to pay an affordable membership fee instead of an expensive tenancy deposit:
- flatfair membership costs 1 week of rent (exc. VAT) split between the household.
- The membership exists in line with the initial tenancy end date and may be extended by the landlord.
- Landlords sell flatfair any unpaid lawful claims up to a total value of 12 weeks’ rent. flatfair can also recover any additional sums at no further cost.
- If tenants agree with a claim, flatfair will charge all tenants equally.
- If tenants do not agree, they can counter the claim and negotiate until an agreement is reached. flatfair also enable tenants to dispute the claim and send it to Independent Dispute Resolution.
Reposit
Reposit was started following an idea from co-founder Jude Greer. Jude created Reposit with fellow co-founder, Brendan Short. Both Renters themselves, they understand the pain of saving huge sums for deposits. Resposit offer an insurance-based deposit replacement product that works as follows:
- Property agent joins Reposit and the fee is paid for by the tenant(s) within the household to add the landlord to the insurance policy.
- The cost is equal to one week’s rent (excluding VAT) and is valid for the life of the tenancy.
- The tenant pays a £30 top up fee annually. The tenant’s fee will lower throughout their renting life, much like a no claims bonus.
- The tenant pays for any claims made at the end of the tenancy. A 3rd party arbitrator deals with any disputes that are made.
- Max cover to the landlord is 8 weeks rent arrears
Correct as of 21.01.2020
Zero Deposit.com
Zero Deposit.com is in partnership with Zoopla and Tenancy Deposit Scheme (TDS) which is a government-backed, not for profit scheme. Unlike the previous products mentioned, Zero Deposit.com’s product is a financial guarantee rather than an insurance policy. The FCA fully regulate this product. Here are the key points:
- The tenant pays for the guarantee but the property agents are the one who take it out.
- The tenant(s) pay the fee which is only payable once, at the beginning of the tenancy and remains in place for the life of the tenancy.
- The cost is equal to one week’s rent and there is an annual admin fee of £26.
- Landlords are covered for any financial loss or damage for which their tenants are liable under the Assured Shorthold Tenancy Agreement.
- TDS are able to settle disputes and pay out to landlords within 2 days.
- Max cover to the landlord is 6 weeks rent arrears.
GoodLord Deposit Replacement Insurance
This is a smaller one-off fee instead of a traditional deposit, which is a large sum of money.
Offer 1.5 to 2 months’ protection for your landlords, instead of the usual five to six weeks from a traditional deposit. Tenants are still liable for any breach in their tenancy agreement and must pass referencing to be eligible.
Their independent and impartial third-party adjudicators, Hamilton Fraser, review claims and disputes and determine the outcome. Hamilton Fraser manage the government- authorised tenancy deposit protection scheme, mydeposits and are specialists in deposit claims and disputes.
Will you be choosing deposit free?
Although there are clear differences between the schemes, it is easy to see how they can benefit both tenants and landlords.
For tenants, there is no manic saving without the guarantee that they will ever see their hard earned cash again. In some cases, tenants can also build a good credit score and improve their rentability. In turn, agents using the schemes should also find that the vetting service is smoother and more efficient.
For landlords, there is a comfort that they can claim more from the policies and memberships than most cash deposits could offer. So in many cases, they obtain more security.
Ultimately, all parties will benefit more from the scheme the more it is used. This can only happen if property agents, landlords and tenants are ready to make that change.
Trust in the system. If this is a fairer way of helping good, respected tenants find and afford property then let’s get on board.
Private landlord DSS accepted with No Deposit?
In the past, had a DSS tenant searched for private DSS landlords where no deposit is required, they would have returned very few, if any, results. The deposit free renting option certainly looks set to change that.
In summary, it does sound like all parties benefit. In particular those tenants who have been unable to rent due to cash flow. However, there are important points to consider. For example, if the tenant is a long term renter, will they be paying more over time than they would if they had paid a deposit upfront? Or, in relation to the schemes where the landlord pays, this is an additional cost. Is it right for them?
Whatever our conclusion, these products are certainly starting to hit the rental market with the likes of Zero Deposit, Flatfair and Canopy making waves.
You can search for no deposit renting properties on our website.
GetLiving decided to ditch the deposit in 2017
In 2017 London firm GetLiving decided to get rid of security deposits all together for those who pass referencing or have a guarantor. They also decided to return security deposits of existing residents as long as rental payments are up to date.
Neil Young, CEO of Get Living, said: “Get Living was the first to revolutionise the rental experience in the UK by removing agency fees and introducing longer term tenancies as standard. We know that the cost of living can be high so, as a responsible landlord with a long-term perspective, it is important for us to be able to identify and address areas where we can alleviate the burden on our residents. Scrapping security deposits as a pre-requirement and returning deposits to current residents is yet another step we are taking to show we are firmly on the side of renters
A recent YouGov survey revealed that 43% of tenants currently in rented accommodation would prefer to see classic tenancy deposits scrapped, and instead have the option of taking out deposit protection insurance.
Advantages of deposit free renting for tenants
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.
Advantages of no deposit renting for landlords
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.
Disadvantages of no deposit renting for tenants
One of the biggest benefits for deposit free renting could actually be one of it’s disadvantages depending on your viewpoint. Currently, the majority of deposits paid by tenants are refunded. However, with new tenancy deposit schemes the fees that they pay to replace a deposit are none refundable. So even though the initial payment is less than a deposit, it may be a loss in the long run.
Another disadvantage is the tenant could end up paying more than the original deposit they initially would have paid. They may also have to pay an excess on any claim by the landlord. The scheme’s providers could take court action to recover the money owed if there is any issues. Tenants could also end up paying additional charges if they make a claim against the landlord and lose in arbitration.
Disadvantages of deposit free renting for landlords
The biggest risk of no deposit renting is in the unknown. As it is a new scheme it is untested and runs the risk of failure and instability. However, this is something that we would only be able to tell in time.
As we know, deposit free renting is not new to social housing sector. Some build to rent developments are switching to a no deposit model and returning tenants deposits. This therefore means that deposit replacement schemes could become the norm for the private sector.
Will you be choosing deposit free?
Although there are clear differences between the schemes, it is easy to see how they can benefit both tenants and landlords.
For tenants, there is no manic saving without the guarantee that they will ever see their hard earned cash again. In some cases, tenants can also build a good credit score and improve their rentability. In turn, agents using the schemes should also find that the vetting service is smoother and more efficient.
For landlords, there is a comfort that they can claim more from the policies and memberships than most cash deposits could offer. So in many cases, they obtain more security.
Ultimately, all parties will benefit more from the scheme the more it is used. This can only happen if property agents, landlords and tenants are ready to make that change.
Trust in the system. If this is a fairer way of helping good, respected tenants find and afford property then let’s get on board.
If you would like more information about listing your properties that have a no deposit option please get in touch.
*All facts checked from respective websites and accurate as at 06th December 2019.
