Is deposit free renting a good idea?

For many tenants, saving up the deposit for their rental property is one of the most challenging aspects when it comes to renting. As the middle man between tenants and landlords, Abode know that deposits are a difficult subject particularly at the beginning of a tenancy agreement and sometimes, especially at the end. But should the concept of deposits be scrapped and rental properties proceed forwards deposit free?

A recent YouGov survey found that 43% of renters would prefer to see tenant deposits scrapped and replaced with deposit protection insurance that pays for any damages to the property at the end of a tenancy, with tenants typically required to pay into the scheme through either a one-off payment, such as a week’s rent, or a monthly fee.

A deposit protection insurance could see tenants taking out an insurance policy of £129 annually for rents up to £2,500.

One particular scheme for example, Zero Deposit, is headed up by former Zoopla Commercial Director, Jon Notley.

The scheme offers an insurance policy underwritten by Munich Re which the tenant acquires for a one off payment at the equivalent of one week’s rent, no matter the length of the tenancy, plus an annual admin fee of £26.

In a statement, Notley said: “Notley said: “Zero Deposit has spent nearly two years working with property and insurance industry specialists to create a solution that addresses both the affordability problem for tenants whilst also designing a product that provides landlords with all of the protections of a cash deposit, and more.”

Under the terms of the scheme, tenants remain accountable for any damage or unpaid rents, with any disputes over claims by the landlord handled by the Tenancy Deposit Scheme (TDS).

Whilst the merits are in place for the scheme, affordability and trust is always going to be an underlying issue. By renting properties, tenants are accepting the landlord’s trust in them to look after the investment that a landlord has spent tens or hundreds of thousands of pounds on. Property investment much like renting comes with up front costs.

Affordability is one criteria that many landlords will prioritise select tenants over, guaranteeing rent is paid and on time.

On top of that, deposit insurance as the potential to leave participating tenants worse off at the end of their tenancy due to the notion of getting nothing back when they move out.

Even if a tenant borrowed the money for a deposit and paid it off over a few months, the interest involved would still be less than the premium paid for deposit replacement insurance.

So what does this mean for tenants and landlords?

There’s no hiding that tenant deposit insurance is becoming a fast growing movement. Over 650 agents across the country have signed up to it, with many looking straight to the positives and seeing the smaller image rather than the larger one. At Abode, transparency is crucial for both parties and our deposits are securely lodged with the Government. By continuing to take upfront deposits, tenants who are truly committed to maintaining a healthy and happy tenancy are able to reclaim the amount in full at the end without paying a penny of interest, whilst landlords are able to rest assured that should any issues arise, they are fully covered to utilise the deposit.

If you have any questions regarding our deposit scheme, deposit costs or any other information on letting a / letting your property across Manchester and the North West, give us a cll on 0161 883 2525.

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