Millions of landlords could adopt deposit alternatives if insured schemes disappear

More than one million landlords could switch to alternative deposit products for their tenants amid proposals to abolish insured tenancy deposit schemes.

The Government has hinted at ending insured deposits as part of reforms of the sector.

Tenancy Deposit Scheme figures suggest the changes could affect how more than 2.1 million tenancy deposits are held and managed.

In response, alternative provider Zero Deposit surveyed 800 private landlords to understand how they would adapt if insured tenancy deposit schemes were withdrawn.

The research found that 9% of landlords would move directly to a deposit alternative product if insured tenancy deposit schemes were no longer available.

Based on the Government’s estimate of 2.86 million private landlords, it equates to approximately 266,736 landlords.

While many will naturally move to custodial schemes, there is also clear evidence that a significant proportion are open to alternative solutions.”

In addition to the 9% who said they would actively switch to an alternative deposit product, a further 26% said they would be guided by tenant preference when deciding how to replace insured tenancy deposits. It represents a further potential 755,751 landlords who may choose to offer deposit alternatives where tenants favour that option.

It means that, together, more than one million landlords could ultimately make use of deposit alternative products should insured tenancy deposit schemes be withdrawn.

The survey also showed that almost two-thirds – at 64% – of landlords said they would transfer tenancy deposits into a traditional custodial tenancy deposit scheme.

Asked about choosing a scheme, a quarter of landlords said the most important consideration would be securing robust protection against damage.

Faster dispute resolution – at 17% – and regulatory certainty – at 16% – follow closely behind, while lower costs – at 15% – and reduced administration – at 15% – are also important considerations. Tenant affordability influences 9% of landlords, while 3% identify cashflow as a deciding factor.

Pragmatic approach

Sam Reynolds (pictured), Chief Executive of Zero Deposit, says: “These findings show landlords are approaching any potential changes to tenancy deposit legislation pragmatically. While many will naturally move to custodial schemes, there is also clear evidence that a significant proportion are open to alternative solutions, particularly where they offer greater flexibility for tenants.

What’s becoming increasingly clear is that landlords aren’t looking for a single replacement for insured tenancy deposits.”

“What’s becoming increasingly clear is that landlords aren’t looking for a single replacement for insured tenancy deposits. They’re looking for a broader toolkit of trusted solutions that help them manage risk, navigate regulatory change and meet the needs of an increasingly diverse tenant market.

“Over recent years we’ve seen growing demand for products that remove barriers to renting while maintaining landlord protection. Deposit alternatives are one part of that, but we’re also seeing increasing interest in solutions such as Guarantor+, which can help landlords confidently let to tenants who may not meet traditional affordability criteria.

“Whatever the outcome of the Government’s proposals, we believe the direction of travel is towards greater flexibility. Landlords and letting agents will increasingly want access to a range of trusted solutions that protect their investment, support good tenants and enable them to adapt as the private rented sector continues to evolve.”