The head of the parent firm of mydeposits is warning tenants and landlords tempted to enter into new ‘no-deposit’ schemes to approach the idea “with their eyes wide open.”
Eddie Hooker, chief executive of Hamilton Fraser - owner of mydeposits - says the cheap option of a no-deposit scheme has obvious appeal to landlords and tenants alike. However, he warns: “Despite the initial attraction, I have been unable to find clear answers to some pertinent questions. Landlords and tenants entering into such contracts should do so with their eyes wide open.”
His comments come after the marketplace for no-deposit insurance schemes appears to have become suddenly more crowded with Dlighted, Reposit and InsureStreet joined in recent weeks by FlatFair (which Letting Agent Today reported on yesterday - here.)
Now Hooker’s mydeposits service has issued a 14-page document outlining the history of deposits and his critique of the arguments on which no-deposit alternatives are based.
Tenancy Deposit Protection was introduced as a legal requirement in 2007 following government statistics which suggested that 20 per cent of deposits were being unfairly withheld from tenants. Now, a decade later, over four million individual deposits are protected by tenancy deposit protection schemes and dispute levels have fallen to less than two per cent of all ending tenancies.
But Hooker accuses the no-deposit players of using the two per cent dispute levels as proof that they can keep their claims and premiums low. “But they are misusing the statistics” Hooker accuses.
“In fact, more than 40 per cent of deposits are returned to the tenant with an agreed deduction. That means at least 40 per cent of landlords will have to make a claim on their insurance to cover costs. Processing claims costs money and claim costs get added to the overall premium” he claims.
“Like most insurance products, the no deposit options reserve the right to subrogate their losses from the party responsible, so does that mean the tenant will be pursued for a claim that they may or may not be responsible for? Will tenants start to receive red letters, black lists and court judgements for missing payments?” Hooker asks.
The mydeposits review also claimstenancy deposit protection has boosted transparency in the private rental sector.
“The Prescribed Information requirements and formal dispute resolution service are set in stone by legislation and are monitored by government set timescales. In complex deposit disputes which require an understanding of the housing law and consumer and agency law, would landlords and tenants prefer an impartial adjudicator employed by a deposit scheme reviewing their case, or an insurance claims handling process?” the review asks.
“Disputes raised through deposit protection schemes are free and the process must be fair for both parties. The no-deposit insurance products remove these safeguards leaving landlords and tenants to rely on the insurer’s terms and conditions” it believes.
Hooker’s document then turns to the possibly that, in the light of the Queen’s Speech announcement of a possible cap on deposits to the equivalent of one month’s rent.
“Following this news, I question whether the no-deposit products will be as interesting to tenants as they may have been. These products command a premium the equivalent to one weeks’ rent. This will now equate to 20 to 25 per cent of a deposit and is non-refundable, whilst also leaving a tenant liable for reimbursing the insurer for any claims they pay out. I struggle to see how this is a viable option for the hardest pressed tenants and is not just another fee they will have to pay” Hooker suggests.
The report suggests that no-deposit schemes are not inherently wrong but claims the current offers fall short of offering the protection that tenancy deposit protection schemes were created to administer in the first place.
You can see the whole mydeposits document here.