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Agents must get to grips with deposit alternatives - their time has come

Lettings agents are being urged to educate themselves as much as possible about rival deposit alternative schemes which are becoming increasingly common in the sector.

The schemes require tenants to pay a non-refundable fee of around one week's rent instead of a traditional upfront refundable security deposit; there are several providers which have emerged in the past two years and the market between them is fiercely competitive.

The tenant's fee is effectively used as a form of insurance which landlords can claim compensation if a renter is held responsible for damage to a property. After compensating the landlord, the deposit replacement scheme then recovers the costs from the tenant directly.


Now one of the lettings sector’s leading PropTech experts - Neil Cobbold, chief operating officer of automated payment service PayProp - is urging agents to become as familiar as possible with deposit alternatives, as they are clearly here to stay.

"It's clear that tenants' awareness of deposit alternatives is growing and many are interested in how the system could work for them and they could soon become a key piece of criteria for some movers" explains Cobbold. 

"Now is a good time for agents and landlords to carefully consider options, including the range of different providers and product variations now on the market."

He says that with more providers and an increasing number of letting agents promoting these products, it's important that agents who haven’t yet entered the market get to grips with what they'd be offering landlords and tenants and how the system works.

"Some of the key things agents need to look out for is the product's level of cover and who the insurance policy is underwritten by" explains Cobbold.

"It's also vital to consider how deposit alternatives fit into the tenancy process and how the system will work at the end of a tenancy if the landlord wants to charge the tenant for damage or missing items."

Cobbold believes the provision of more choice is necessary because renters are now such a diverse constituency.

"Upfront deposits may not be as much of an obstacle for the higher number of older tenants and family renters living in the PRS, who may also prefer to put aside a larger sum of money for the duration of their tenancy which they can get back at a later date" he says.

"That said, for those who find sourcing funds for a traditional deposit a moving deterrent, alternative products are a welcome addition to the marketplace. It’s also very important for tenants to do their research and think about what is best for their circumstances.

"A small upfront fee and subsequent insurance policy may seem more appealing, but it might not always be the best option in the long-term."

Recent research from Your Move suggests that renters are increasingly interested in alternatives to traditional upfront deposits.

Some 50% per cent of almost 4,000 adults surveyed said they were interested in alternative or insurance-backed schemes, while 70 per cent said having the choice to pay an upfront deposit scheme would influence their decision on whether to rent a specific property.

Over half of those taking part in the study were aged between 25 and 44 years with children at home or private tenants aged 45 and over.

  • jeremy clarke

    "Effectively used as a form of insurance..."
    Therein lies one of the issues with tenants believing that they have taken out an insurance policy so they have no worries about damage and unpaid rents, they clearly have not!
    This is another PPI just waiting in the wings, waiting for the claims to roll in, the tenants to realise that their efforts to take zero responsibility for their own actions have failed, the landlords left exposed, the costs of the schemes going through the roof. Who is the winner?

  • Emma Hamilton

    Seen some not pay out as inventory was done in house. Check the small print, its like car insurance etc, you think you've got cover until you claim. Landlords left out of pocket too

  • Angus Shield

    I have a single genuine concern whilst investigating such schemes; would tenants simply be factoring-out their responsibility and transferring their liability?
    Whilst I disagree with the 5-week deposit quantum as its simply insufficient in default situations, I also understand the need to attract applicants with lower up-front costs.
    My cynism lies with insurance providers and every opportunity for their 'get-out clauses' links in the claim chain.
    Would an Agent then be culpable if a tenancy turned rotten and costs accrued in 'going about their normal duties' when a zero-deposit scheme does not pay on a technicality; I can see our PI insurances increasing!

  • Suzy OShea

    My experience has been that i have had to halve the amounts I request for deposits because people who live in HMOs are not rich and often can't afford two months rent.

    So I either have to reduce the rent or the deposit, which is not mine anyway!

    I am dead against insurance companies trying to milk this vulnerability and satisfying no one!


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