An increasing number of letting agencies are signing up for new zero deposit schemes. They have been introduced to help alleviate financial pressure on tenants, who may struggle to pay a significant amount of money up front. The scheme is also designed with landlords in mind, providing cover for any damage inflicted on property and any unpaid rents.
The scheme allows tenants to acquire an insurance policy instead of paying a deposit, usually the equivalent of one month’s rent. Some tenants may find themselves having to save up to pay upfront deposits, which can delay the moving process. If the tenant is moving from one rental property to another, often the deposit from the current property is not refunded prior to paying the new property’s deposit fee, putting a substantial financial pressure on the tenant. Instead, taking out a non-refundable insurance policy will only cost around a week’s rent and gives tenants more freedom when moving home.
However, critics argue that the no deposit scheme does not ensure tenants will be committed to the upkeep of properties. Without the promise of a refunded deposit, there is a risk of tenants not being incentivized in the maintenance of the property. Tenants may also sign up to the scheme with the belief that they will absolve responsibility for keeping the home in good condition. This may lead to landlords turning down tenants who opt for these schemes.
If this was a concern of yours, rest assured that properties rented under the zero deposit scheme are protected for around 8 weeks’ worth of rent. This actually provides around 33% more protection than if a deposit was taken instead. When the tenant is getting ready to move out, any unpaid rent or outstanding damage needs to be settled, just as if a deposit had been paid at the beginning of their tenancy. The policy ensures that tenants remain accountable for any damage inflicted on the property or any unpaid rents.
If you are a landlord considering taking on a tenant under this scheme, carefully explain to them what is involved so that they are fully aware of their financial responsibilities. New deposit schemes are a positive change for tenants who may struggle to pay an upfront deposit but, ultimately, they are still in their experimental phase and must be adopted with caution.