Deposit-free renting promises to shake up the market, but does it really help?
There is no shortage of companies looking to "disrupt" the lettings market by offering a service that promises to make the traditional approach cheaper, easier, or faster. One such scheme, "deposit-free renting", involves taking out an insurance policy (paid for by either the tenant or the landlord) to cover damage to the property or unpaid rent, without the tenant having to put up a significant amount of money up front. But it's not clear that deposit-free renting is really helping anyone other than the people selling it.
One of the most established deposit-replacement insurance schemes is Dlighted. Its policies are paid for by the landlord, and cost £129 a year for rents up to £2,500 a month, assuming the tenant passes reference checks. At the end of a tenancy, landlords take up disputes directly with the tenant. But if a resolution can't be reached, the landlord can make a claim on the insurance. In the event of a successful claim, the insurance company will pursue the tenant for the money (via a right known as subrogation, which allows it to claim from a third party).
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Several other schemes offer similar cover, but with a crucial difference the tenant, not the landlord, pays for the policy. With Flatfair (which is apparently not an insurance company, but instead "facilitates" payouts), the one-off cost to the tenant depends on the monthly rent; for example, covering a monthly rent of £1,000 costs £277.
Zero Deposit works in a similar way, with a policy costing the equivalent of one week's rent, and an annual administration fee. Claims found in the landlord's favour are then paid by Zero Deposit, which will claim the cost from the tenant.
So the main benefits of deposit-free renting seem to be that it lowers the upfront costs of renting for tenants. However, it's not the most convincing model. First, landlords are likely to want to avoid tenants who can't afford to put up a deposit. On the tenants' side, importantly, although the upfront costs are lower, they will not get the cost of the policy back when it ends, unlike with a deposit. And where damage must be paid for, they could still be pursued to cover the cost, meaning it could end up more expensive for them than if they'd lost their entire deposit.
It's also questionable whether or not providers' resolution services would be as helpful as those of deposit-protection schemes, which are government-backed arrangements that look after deposits (though Zero Deposit has partnered with one).
The demand for such services is likely to fall once the deposit cap comes in (see column), but in the meantime, it's a part of the market we would steer clear of.
Fee ban coming soon
Tenants have long complained that letting agents charge an unfair number of fees to set up or manage a tenancy. These include referencing fees, credit-check fees, tenancy-signing fees, and administration fees. But for tenancies signed on or after1 June, the only costs landlords and agents will be able to charge tenants will be: rent, a refundable deposit (capped at five weeks' rent), a refundable holding deposit to reserve the property (capped at one week's rent), the reasonable cost of replacing keys or compensating for late rent, and changes to the tenancy requested by the tenant (usually capped at £50).
Landlords' groups have warned that a ban on letting agents charging fees to tenants will result in higher fees charged to landlords, who in turn may charge higher rents to tenants.
Emma Lunn is a multi-award-winning journalist who specialises in personal finance and consumer issues. With more than 18 years’ experience in personal finance, Emma has covered topics including mortgages, first-time buyers, leasehold, banking, debt, budgeting, broadband, energy, pensions and investments. Emma’s one of the most prolific freelance personal finance journalists with a back catalogue of work in newspapers such as The Guardian, The Independent, The Daily Telegraph, the Mail on Sunday and the Mirror. As a freelancer she has also completed various in-house contracts at The Guardian, The Independent, Mortgage Solutions, Orange and Moneywise.
She also writes regularly for specialist magazines and websites such as Property Hub, Mortgage Strategy and YourMoney.com. She’s particularly proud of her work writing about the leasehold sector and a Guardian front-page story about a dodgy landlord. She has a real passion for helping people learn about money – especially when many people are struggling to get by in today’s challenging economic climate – and prides herself on simplifying complex subjects.
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