Some Letting Agents Put Under Scrutiny Regarding Transparency Over Zero Deposit Schemes

Deposit-free renting has caused debate in recent days, posing the idea that many letting agents have been mis-selling deposit alternative products, which could result in ‘hidden costs’ for tenants later down the line.


Traditional Deposit Schemes


When renting a home, upfront deposits are important because they protect both the tenant and the landlord, (provided that the deposits are registered and processed correctly). 


However, a large upfront deposit cost can often be hard to find for many prospective tenants, which in turn, can also affect landlords who are trying to attract tenants.

This system has been described as prohibitive and has come under scrutiny recently, with the government focusing on making renting more affordable.


What is a zero-deposit scheme?


A Zero Deposit Guarantee replaces the traditional security deposit. Zero Deposit renting is faster and more affordable for tenants and means that the tenant can move into the rental home without having to pay large upfront costs.


How does it work?


With zero deposit schemes, the tenant will pay a non-refundable fee, equivalent to one week’s rent to the insurance provider, meanwhile, the landlord gets a guarantee for the same amount as a 6-week tenancy deposit whereas the current legislation limits a traditional tenancy deposit to just 5 weeks’ worth of rent. 


If a tenant vacates the property with no damage, outstanding bills or unpaid rent then there’s nothing more to do.  If there is any of that, once a claim has been substantiated through means of a third-party inventory, the landlord receives payment from the insured party on behalf of the tenant who, in turn, seeks to recover those costs from the tenant directly but with greater powers and controls under the credit agreement to which they have entered.


Why have these schemes come under scrutiny? 


Zero deposit schemes have been criticised as an alternative to the traditional deposit because it has been claimed that many letting agents are offering deposit-free options without making it clear they could cost renters more, over time. 


At Belvoir, we ensure that tenants have not only all options available to meet their individual needs, but also the information to make an informed decision, whether they would like to opt for a traditional upfront deposit or whether they would prefer a deposit replacement product.  We believe that tenants must always be fully aware of the terms and conditions, regardless of the choice they make.


With a traditional deposit, this means reading the tenancy agreement to understand when a landlord can deduct monies from their deposit, and for a deposit replacement they understand that they will always be responsible for deductions at the end of the tenancy even though they will have paid a fee for the product.


The law states that tenants must be offered a choice of both a traditional deposit and a replacement product.


With a growing number of agents, including ourselves, offering zero deposit schemes, they are rapidly becoming more popular, which is great news for many tenants and landlords, given that research shows that they unequivocally want choices. 


With Belvoir, there are no hidden costs.


As always, if you are a landlord or a tenant and have any questions for us at Belvoir, feel free to either call or us or nip into one of our offices to speak to a member of our friendly team.


To summarise, important points to keep in mind with zero deposit schemes:

  •  The Zero Deposit Guarantee provides landlords with greater protection if tenants do not pay them directly for the cost of any financial loss or damage due.
  •  A Zero Deposit Guarantee is offered to tenants as a choice, so if tenants would prefer to pay a traditional deposit, they can. With a traditional deposit your money will be returned to you if there is no financial loss or damage due to the landlord at the end of the tenancy.
  • Tenants remain completely responsible for any financial loss or damage due to the landlord, in both cases, as they would with a traditional deposit.
  • The cost of the Zero Deposit Guarantee is not returned to the tenant at the end of the tenancy or offset against any claim by the landlord.
  • There is an annual admin fee of £26 per tenancy collected every year by Direct Debit from the first anniversary until the end of the tenancy.


In summary, from an all parties perspective, the zero deposit scheme reduces the barriers of entry for all who wish to join the scheme and at the same time, this also enables a faster move in process whilst reduced void periods between tenancies.

If there are no dilapidations and/or no rent arrears upon the conclusion of a tenancy, both parties have been better off under the scheme.

However, if there are dilapidations or rent arrears upon vacating, there are greater powers to recover costs incurred by the landlord and this is the aspect that is under present scrutiny.