For anyone taking on a new tenancy, deposits have traditionally been the greatest source of headaches. Typically, tenants are asked for four to six weeks’ rent as down payment, while also having to pay for a month’s rent upfront at the same time.
Especially if you’re changing tenancies and moving from one rental to another, you may have to borrow money or use savings to stump up the necessary cash, which can easily amount to £1,000 or more in total, an average rise of nearly a fifth in the last five years or so.
Additionally, there is often that tricky gap between getting a deposit back and having to pay the down payment on the new place.
It’s true that there has been a clampdown on other admin charges for tenants as they take the keys to a new property. Equally, all landlords or letting agents must protect rental deposits in an approved scheme within a month of receipt. (And return the deposit within 10 days of agreeing the sum to be returned on departure.) This became the law in 2007, and since then tenant-landlord disputes have dropped to just 2%, while departing tenants have got their deposits back more often than not since the deposit-protection rules came in.
Recently, though, deposit-free schemes have been growing in popularity among both landlords and tenants as a potentially highly attractive alternative, and it’s not hard to see why, despite the relative newness of these arrangements.
How do these schemes work and what’s in it for me?
The basic aim is vastly to reduce the cost to tenants of moving house, and make that affordable, while also safeguarding landlords against rent arrears and any physical damage to the house or flat, widening the pool of prospective renters and potentially filling up a property a lot more quickly.
There are a number of zero-deposit schemes around, and each one has slightly different terms. Some are described as a kind of insurance, although strictly speaking none is a policy in the traditional sense.
It works with tenants paying a non-returnable charge to buy into the scheme. They remain liable for any financial loss or payment for damages owing to the landlord.
In Zero Deposit, the one we use at Oakfield, tenants pay the equivalent of a week’s rent, while for their part landlords enjoy protection worth six weeks’ rent.
Crucially, tenants do not get their initial payment back once the agreement ends. At the end of the tenancy, the Zero Deposit scheme pays for any claims found in favour of the landlord. It will then seek to get that money back from the tenants, and may, as a last resort, use a debt collection agency for those who do not reimburse them.
Who qualifies for one of these agreements?
At the moment, certainly not everyone. You will need to be approved via a string of checks, and a no-deposit arrangement works only for those embarking on a standard Assured Shorthold Tenancy deal. And because the landlord must agree to using a deposit-free scheme, these arrangements aren’t currently universally available on all rental homes.
Are there any possible pitfalls?
As a comparatively new idea, there’s currently no cap on fees, or any rules on what you can be charged. As with anything else, always check the small print first, and know your rights. It’s also very important that any scheme you use is regulated by the Financial Conduct Authority (FCA), as the Zero Deposit one is. (It also has a relationship with the Dispute Service.)
Zero Deposit asks for an annual admin fee currently set at £26. There isn’t a charge for cancelling the guarantee with Zero Deposit, and you can do so within 14 days of signing up if you wanted to.
How we can help
The lettings teams at Oakfield Estate Agents, covering Eastbourne, Bexhill and Hastings, have been all year, and there’s every sign that will continue for the foreseeable future as renting becomes an increasingly attractive option in uncertain times.
Chief Executive Neil Newstead says: “These no-deposit schemes are a great idea for landlords and tenants alike. Clearly, for tenants keen to clinch a home they love, the process of moving in is made cheaper and quicker.
“Meanwhile, for landlords wanting to let out a flat or house, the process again becomes far quicker and easier, at no cost to their income or financial security. We’re also highly confident that Zero Deposit operates a fair, reputable and trustworthy service that works with more than three quarters (79%) of the UK’s leading estate agents.
“So we’d encourage landlords and tenants to use this scheme through us, safe in the knowledge that they’re in safe hands all round.”
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