Deposit Replacement Schemes - should landlords embrace or beware?

PUBLISHED: 20:32 09 June 2018

Pic: www.gettyimages.co.uk

Pic: www.gettyimages.co.uk

In the wake of the up and coming tenant fee ban, currently trundling its way through parliament, so called ‘Deposit Replacement schemes’ are popping up all over the place in the lettings market. Mike White, from Martin & Co, tells us more.

Mike White, Martin & Co. Pic: www.edp24.co.ukMike White, Martin & Co. Pic: www.edp24.co.uk

If you haven’t seen them yet, you will; not least because the government has taken notice of a select committee’s recommendations “and will encourage further innovation in the deposit free renting sector”.

There’s a number of different variations on the theme but broadly speaking what happens is that a tenant, instead of having to find, say, a month and a half’s worth of rent, as a security deposit, pays the equivalent of a week or so’s rent to provide their new landlord with an insurance policy covering any dilapidations to the property during their tenancy. The theory is if the landlord does need money to put things right at the end of the tenancy, the insurer coughs up and then goes to the tenant for reimbursement. The tenant is obliged to pay and if they don’t then the insurer pursues them through the court system.

Sounds fantastic doesn’t it – the landlord gets their money and the tenant doesn’t have to find a hefty security deposit upfront, not seeing it again until the end of the tenancy. So, along with paying no agent fees, for a few hundred pounds, they’ll be able to move into your house. What could possibly go wrong?

The reason some agents are so keen on them, particularly the corporate agents, is that they get a big wedge of the ‘few hundred pounds’ paid back to them as a commission payment. There are many agents up and down the country who have structured their whole being around offering cheap deals to landlords and recouping the cost of doing business by whacking tenants with big fees. Come the fee ban, those agents are going to have a bit of a problem unless they can replace the lost revenue.

So, let’s have a quick look at the plus and minus points from a tenant perspective. For good and bad tenants’ alike, there’s the obvious advantage of not having to stump up so much at the outset. However, for the good tenant who pays their rent and leaves the property as they found it, while they would previously have received their entire deposit back, a deposit replacement scheme will cost them a non-refundable fee. Many of these schemes require the tenant to pay an ongoing monthly fee as well, so if the tenancy lasts for a couple of years or more, this will cost them dear in the long run.

For the tenant who leaves a mess or damages the property, they’ll still be required to cough up the remediation costs in full just as they would if they had put up a security deposit. But, it’ll have cost them the same fees as for the good tenant and should they choose not to pay for the dilapidations, then it will definitely be a case of ‘See You in Court’, since no insurer will take that laying down.

What about for the landlord? Well there’s the argument that they’ll be more potential tenants for your property as fewer people will be ‘priced out’. On the other hand, without that commitment of putting up a real deposit, they’re not going to think they have any ‘skin in the game’, so will they look after the property quite so well? I’d 
also be concerned about the length of time it took for the scheme provider/insurer to pay out the damages at the end of the tenancy. While the current Deposit Protection Schemes can be slow, at least the process is well established and, moreover, if a deposit dispute goes to adjudication, you know that it will be done fairly and independently.

Since I was taught to be cautious and am much more of a risk manager than just someone trying to flog you landlord services and products at every opportunity, I will be very wary of these schemes until they are proven beyond doubt. Hence, you won’t see Martin & Co Norwich marketing them as the next best thing. For now, cash will remain King!

For more information and for a better understanding of deposit replacement schemes, give Mike White a call at Martin & Co Norwich, column sponsors, on 01603 766860.

Latest Property Articles

South Norfolk is a house-building hotspot, coming seventh in a new league table showing the areas of the UK where the most new homes have been built over the past seven years.

A stunning manor house boasting 12 bedrooms and situated in almost 19 acres of gardens and grounds south of Norwich has come on the market for offers in excess of £2.4 million.

Savills in Norwich have relocated to a modern new office. Louis de Soissons, head of residential, tells us more.

If you’re looking for luxury living in a new home, this weekend, many showhomes are open to potential buyers with several open events planned around the county.

See the building work going on at a former Methodist chapel in east Norfolk which is being converted into a luxury home, shortly going up for sale. Property editor Caroline Culot went to take a look.

If you are looking to buy a secret hideaway, this intriguing detached, two bedroom brick and flint railway cottage near Norwich, tucked away and completely hidden from view, is for sale at auction for a guide price of £180,000-£190,000.

The housing market may be showing signs of a pre-Brexit slowdown but your home still went up in value in Norfolk, and even more so in Suffolk, over the summer, new figures show.

He was famous as a Victorian circus owner and was then immortalised in a song by The Beatles.

A £45m scheme for more than 200 homes on a Norwich city centre site, empty for more than a decade, has been submitted.

An investment management firm is looking to build up to 500 new homes near Thorpe St Andrew.

Buying a new home in Blofield comes with an extra special housewarming present in the form of a big hamper filled with goodies from the local farm shop - all thanks to a new collaboration between house builders Kier and agents Bidwells.

TV celebrity Linda Barker is to design eight new holiday lodges just given planning permission.

This year the invaluable government-backed Help to Buy scheme, helping young people get onto the property ladder, turned five years old. Alison Page, from David Wilson Homes, tells us more.

If you’re not married and you or your partner dies, if you haven’t made a will, it can have devastating consequences. Jo Tinson, from Spire solicitors, gives legal advice.

After cabinet minister Liz Truss called for more homes to be built in the countryside, the debate has raged on over whether the government needs to change planning laws to enable this. Property editor Caroline Culot asked two estate agents for their view.

Developers behind major schemes deemed crucial to regenerating parts of Norwich could be excused from paying a levy of thousands of pounds.

Not only has Polish carpenter Boguslaw Starzec almost doubled in size a modest bungalow, but he has also created the most incredible interiors mostly furnished with bargain buys from auction and eBay. Property editor Caroline Culot went to visit to find out more.

New homes often come with incentives to buyers such as carpets, curtains and appliances - but one developer has now linked up with a top Norfolk restaurant to literally whet the appetite when buying a new house.

What’s top on your list of must-haves when you move? Probably a fantastic kitchen or bathroom - or both! These are the rooms which many people change. However, if you are looking for a bathroom which really gets you in a lather, how about these in homes for sale which might just tantalise you into making that move.

Once thought to have been demolished along with a magnificent mansion, this former falconer’s lodge was discovered in the forest and has now been transformed into a magical holiday hideaway.

It’s often called the cruellest tax of all. But exactly how much inheritance tax do you have to pay, when and can you avoid it?

Does your letting agent hide behind the Data Protection Act to avoid sending you vital paperwork? Mike White, from Martin & Co in Norwich, discusses.

Earlier this year saw the introduction of the profound changes to the taxation of buy-to-let investments, leaving landlords scrambling around trying to protect themselves from higher tax bills due to the reduced deductibility of mortgage interest. Jon Hook, managing director of Norwich Accountancy Services, tells us more.

Buying a new home brings lots of benefits, some you may not even have thought of. Dawn Urry, from Bennett Homes, tells us more.

An apartment occupying an entire floor in Norwich’s Westlegate Tower has just gone on sale for £750,000.

When Norfolk primary school teachers Courtenay and Joey Caston decided to 
buy a house, they never imagined they would be spending every spare moment doing everything from knocking down walls to realigning a chimney. Property editor Caroline Culot went along to find out more about the renovation project.

With first time buyers an ever growing proportion of the new build market, the sort of homes being built for them must adapt to remain in demand, according to recent research by Savills. Tamara Greener, from Savills New Homes, discusses.

The Property Shop in Acle reports a hot summer in terms of property sales and listings, selling on average one property a day last month. Managing director Sheron Harley discusses.

Demolishing Norwich’s Mile Cross depot, to make way for hundreds of new homes, will cost almost £2m - because the site is so contaminated, council bosses have revealed.

Thirty-five homes could be created above Norwich’s Jobcentre, if proposals get the green light.

It’s one of the most historic landmarks in Norfolk, let alone the city, and this house for sale is believed to be one of the last homes that exists there. Property editor Caroline Culot had the great privilege of visiting Elm Hill, where this marvellous house of history is for sale for a guide price of £900,000.

If your house is bursting at the seams, a usable conservatory or garden room may be just the answer.

If the idea of relaxing in your own hot tub feels just like a pipe dream, read on. Expert Ben Halton-Farrow from Wensum Pools says they’re easier to install and run than many of us may think.

We’ve all seen crazes for coffee makers and juicers come and go and come back again, but what do we actually use and what’s still in the box?

If you look around your kitchen and feel overwhelmed by crowded worktops, greasy cooker hoods and overflowing cupboards, try our one step at a time cleaning plan.

Does your bathroom resemble a battleground in the mornings? Elbows at the ready as you jostle for space over the basin, arguments over who gets to shower first, and a regularly disputed timeshare of the bathroom mirror. Here are some tips for creating a harmonious ‘his and hers’ bathroom.

Houseplants are enjoying a bit of a boom, and rightly so. Not only do they look great, they’re also good for your health and wellbeing, so what better place to keep them than in the bathroom?

Mermaids usually help lost seafarers but in the case of this 300-year-old former coaching inn, it is the one in need of saviour. The former Mermaid Inn at Hedenham is going under the auction hammer, for sale for £190,000-£225,000, after falling on hard times.

Fancy buying part of the heritage of Great Yarmouth? A rare chance to buy a detached house in the grounds of the former Royal Naval Hospital, South Denes, has arisen.

Developers behind the revamp of Norwich’s Anglia Square could lodge revised plans within days, amid speculation the height of the scheme’s controversial tower might be cut.

A former school and acres of farmland look set to be sold off by council bosses as they grapple with ways to close a budget gap of almost £100m.

Winner of Channel 4’s Come Dine with Me, culinary queen Polly Guy is joining the line-up of Norfolk’s top chefs at the Aylsham Show’s Cookery Theatre event tomorrow, stepping in at the last minute after a cake making cancellation.

Neighbours who battled to stop student flats being built near their homes are celebrating after a planning inspector dismissed an appeal over the scheme.

Meet the Editor

Caroline Culot


I am the property editor in charge of delivering some exciting and informative content within Archant’s varied titles. We have 16-17 pages of stories, features and columns in the EDP Property supplement out every Friday free in your EDP so please don’t miss it.