Would you like to pay a deposit or keep your money?

Pay a deposit or keep the money? I know, you’re probably thinking that’s a trick question, but actually it’s not.

Moving home can be expensive, very expensive. As a tenant you have a chunk of money tied up in the deposit on your current property which would be very useful but…. you won’t get that back until after you’ve moved out. Hmm, that’s not helpful, so let’s forget about that little pile of cash.
In order to move you’ll need to find the first months rent for the new property and another 4-6 weeks deposit. For a £1,550pcm three bedroom property in Enfield you will be looking at an upfront rent and deposit payment of between £3,100 and £3,700. Now add on agency fees and general moving costs and you’re easily looking at over £4,000, and that’s a lot of anyone’s money! 

Can it be made easier (cheaper)?

Yes it can. At Belvoir we’ve just introduced the nil deposit scheme where officially there is no deposit payable. Yes really, no deposit! If you’re a tenant that probably sounds great but if you’re a landlord you may be thinking

‘If there’s no deposit, then who’s paying for damages and arrears when the tenant leaves?’

But it’s OK, you’re covered, trust me.

So how does the Nil Deposit Scheme work?

Instead of paying a standard deposit, the tenant pays a non-refundable fee of one week’s rent (+VAT) to our partner company Let Alliance and they effectively guarantee the landlord that any damages and arrears (up to a 6 week deposit value) at the end of the tenancy will be paid for.
There is a little bit of small print with the policy, so landlords have to have a full inventory (why wouldn’t you?) and tenants have to have valid Tenants Liability insurance.

What are the pro’s of the scheme?

For the tenant, the upfront funds required can be significantly reduced from £3,700 to just under £2,000.

For the landlord, damages and arrears are still covered but additionally the Tenant Liability Insurance covers the tenant for accidental damages to the landlord’s property during the tenancy. The way this policy works is that if the tenant has an accident they can immediately get in touch with Let Alliance and tell them ‘I dropped the iron on the carpet and there’s a big burn mark’, and they’ll take care of it.  The big benefit of this is that accidental damages are addressed as the tenancy progresses rather than becoming contentious issues at the end of the tenancy and potentially having to be ruled on by an independent adjudicator (although there is still an adjudicator if required).

Another benefit to the landlord is that if there is no deposit then there’s no deposit paperwork, and if there’s no deposit paperwork then it can’t be served incorrectly (which can be a very costly mistake!)

And what are the cons?

For the tenant the con is obvious – you will not get your fee back even if your tenancy is absolutely faultless, and you have to renew your Nil Deposit annually at a cost of £25 (+VAT). Another con is that you might not otherwise take out Tenant Liability Insurance which costs around £5 – £6 per month. Also, just to be clear, if there are damages or other required deductions at the end of the tenancy, you still have to pay for them and will need to reimburse Let Alliance within 14 days. 

For the landlord you will have to have an inventory. Here’s an article I wrote last year as to why I think everyone should have an inventory – Can Enfield Landlords Protect Their Properties with Inventories?

Is everyone eligible for the scheme?

The only people who are not eligible for this scheme are those who are wholely reliant on benefits to pay their rent (people who work part-time and receive a Council top-up are fine) and anyone who has been in the UK for less than 6 months.

Would I personally use the Nil Deposit scheme?

As a tenant, if money was an issue then yes I would. Or, if I was moving to somewhere for the longer term, then I might pay the fee and do something else with the rest of the money like buy furniture or maybe invest it. The fee for the £1,550pcm property is £429 incl VAT so for a 3 year tenancy that’s the equivalent of less than £15 per month (including renewals) or for a 5 year tenancy its around £10.50 per month. 

However if I was making a short term move for 6 – 12 months then I would pay the deposit because there’s no get rich quick scheme I’m aware of that would earn me £429 in 6-12 months from a £1,717 stake.

As a landlord, yes, I’d be fine with it. I would always have an inventory anyway so there’s no additional cost, and it could well make life easier for my tenants, which would make life easier for me.

Some landlords may say no though. The main concern being that if the tenant can’t afford the deposit then do they have enough of a financial buffer to cope with any unplanned expenses that life throws at them before they’re unable to pay the rent? It’s a valid concern, and while you could also take out Rent Guarantee Cover to protect you against arrears, nobody wants to go do down that route unless they have to.

For additional practical landlord and tenant advice please see the blogs section of our website