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  • Deposit Protection

    Deposit replacement - analysis and views



    Deposit replacement schemes are a new type of product which are gaining traction within the private rented sector.

    Instead of a tradition cash deposit, the tenant buys an insurance policy, which costs the equivalent of one week's rent, but this provides cover of up to 6 weeks rent, should there be a dispute at the end of the tenancy.

    James Davis, CEO of Upad and a landlord of 20 years experience, was an early adopter of deposit replacement, and Upad has partnered with Zero Deposit*, so James is a great person to discuss this with as he can speak from the point of view of both the landlord and the lettings agent:


    As you heard in the interview, James believes there are many benefits of using deposit replacement schemes, and in the case of Zero Deposit, both landlords and tenants have peace of mind that the scheme is FCA regulated and the dispute process is handled by TDS.

    FIND OUT MORE ABOUT ZERO DEPOSIT

    *Zero Deposit is a commercial partner of both Property Tribes and Upad and Upad is also a commercial partner of this site.

    What are your thoughts on this and have you offered this option yet?

    SEE ALSO  -          Zero Deposit Schemes

    UP NEXT -              Zero Deposit - best new LL product in ages

    DON'T MISS -         Deposit replacement is here - Zero Deposit

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    Couple of things

    i am thinking of is if the cost is 1 weeks rent approx, assuming the insurance lasts 12 months, then if a tenant stays for multiple  years it is surely not cost effective for the tenant? 

    Also how do you ensure that the tenant renews the insurance?

    Does this mean you are forced to use new ast and not move to periodic tenancy?

    With deposit protection tenant gets money back whereas this is simply a fee/cost to the tenant.

    Personally it feels like something that would be useful where rent is high and tenant turnover is high
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    Slowly working towards financial freedom


    Good questions, I would also like to add what is the incentive to the tenant to leave the property in a good clean state? 

    If they don't they have insurance that will pay the landlord, often the clean up after a tenant is more about the amount of time spent than the cost, if this product increases the amount of clean up I don't see it as being any good.

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    Hi catdog,

    In answer to your question about their incentive to leave the property in a good clean state, the tenants liability remains exactly the same as with a cash deposit - so the incentive is exactly the same.

    They key point here is that the tenant(s) are not insuring themselves. They are buying an insurance backed guarantee for the landlord, which protects the landlord against any financial loss or damage that they would normally recover via a cash deposit.

    So when a tenant leaves a property with unpaid rent, damage or cleaning required, they are liable to cover the cost of that. If they refuse to or are unable to do, we will award any fair claims to the landlord (involving the TDS where needed to adjudicate) and then we settle the amount awarded up to the maximum of 6 weeks, which is obviously more than the capped cash deposit on most properties now. After that, we pursue the tenant for their liability, even if it requires us to go through to a CCJ. 

    Hope this helps to clarify this point but please ask if not clear,

    Thanks


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    Thanks,

        So why would the tenant do this?  it sounds like a fee to me.

        The tenant buys insurance for the landlord but is still liable for 5 weeks rent for damages etc, plus they have already paid for a week so they are paying 6 weeks.  If I were a tenant I would be asking to just use the normal deposit scheme as that is free.

        Im sorry I don't really understand what you add, you still need to go through the TDS to claim any of the "deposit", I guess there is an advantage that the tenant does not have to pay the deposit upfront.  The issue though I see with your business model is tenants that will like this are those with little money or assets,  Tenants in these situations often leave a property because they owe a lot of rent and are generally in a huge amount of debt..  Good luck getting any money from them and you can say we will chase them even if it means a ccj, but in reality that costs lots of money and spending that sort of money going after someone that has no money and no assets is financially never worth it.

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    Mason

    I hope I can help to answer your questions. 

    You are right that the tenant pays 1 weeks rent at the start of the tenancy. If the tenant stays multiple years then an admin fee of £26 is collected on the first year and subsequent anniversaries. The insurance automatically renews each year if the tenant is still in the property, so there is no risk to the landlord of the cover stopping, even if the admin fee is not paid by the tenant. Whether the tenancy is renewed or moves to being periodic it makes no difference to the Zero Deposit Guarantee.

    You are correct that the tenant doesn't get the money back, so it is always their choice as to whether they would like to put down a cash deposit or purchase a Zero Deposit Guarantee - it cannot be imposed upon them.

    We find that it is working across all areas from the north to the south, regardless of price point or expected length of tenancy. 

    Hope that helps but please ask if you have any other questions or you can visit zerodeposit.com/landlords 

    Ben

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    Hi Ben,

    You seem like the person to ask. Can you tell me why FCA regulation is sold as benefit? Surely FCA regulated jut means the product needs to be sold under strict compliances as it easy to mis-sell to unsuspecting customer...

    PPI was FCA regulated and yet that's caused years of redress campaigns.

    Just like to know what I'm missing here as I don't think this is a benefit - like selling car with handbrake.

    Thanks

    Pat

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    Interesting, so if in my example i have a tenant who has been with me 9 years paying 650pcm.
    They would have paid roughly 150 initial payment for insurance plus 26 per year admin for the 9 years.
    If so that isnt a bad deal at all
    Andy
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    Slowly working towards financial freedom