Only 'banking' schemes allowed for Scots tenancy deposit

Draft regulations laid before the Scottish parliament look set to make tenancy deposit protection compulsory – with two surprise elements.

First, only custodial schemes will be allowed, not the insurance-backed models which allow agents or landlords to hang on to the deposit money.

Second, the draft legislation totally ignores agents and puts the responsibility to protect deposits entirely on landlords.  

In England and Wales, Mydeposits (launched by the National Landlords Association) and the Tenancy Deposit Scheme (launched by ARLA) both operate insurance-backed schemes.

Both schemes were launched after Westminster gave in to demands that insurance schemes should be launched.

The news that in Scotland only scheme operators who physically bank the money will be allowed, is totally unexpected.

It will also come as a blow to some operators.

Steve Harriott, chief executive of the TDS, recently made it clear that his scheme would have been interested in tendering to run a scheme in Scotland.

However, insurance-backed schemes have not been without their problems. Because agents and landlords are allowed to hang on to the money, inevitably there have been cases where the money has not been kept in a separate client account and been spent, or has simply disappeared.

This may have carried some weight with the Scottish law-makers.

On the other hand, a custodial scheme can potentially be a heavy cost on taxpayers.

Because it is funded entirely by interest from the banked deposits, in a low-interest environment such schemes might require public funding.

Lettings industry consultant Laurence Dillamore said that Scottish taxpayers might have to shell out £3.5m a year.

He said: “Making free-to-use ‘custodial’ TDP models as the only option for the estimated 250,000 properties in the PRS in Scotland was totally unexpected.

“The reason being is that it is self-evident that ‘custodial’ TDP schemes are only funded by interest earned. Therefore, at the current Base rate, it cannot generate enough income to enable the scheme administrator to break even, let alone make a profit, without a subsidy or guarantee from Government.

“So, if interest rates remain at or around the current level, the annual cost to the Scottish taxpayer would be circa £3.5m. Coincidentally, this is virtually the same amount as it is alleged is unreasonably withheld by landlords (£3.6m).

“At a time of financial austerity and resulting public spending cuts affecting the whole economy, this is a surprise to say the least.”