TDS is the longest running deposit protection scheme (operating a voluntary scheme from 2003 before the statutory requirement started in 2007). TDS also carries out adjudications for Zero Deposit, a leading deposit replacement insurance company.
There are over four million deposits protected in England and Wales; it’s likely that the number of deposit replacement products sold to date is below 50,000 so cash deposits still look like an enduring feature of the current market.
The introduction of deposit replacement insurance coincided with the concerns expressed by tenants’ groups, Shelter and Generation Rent about the costs faced by tenants in renting. This directly led to the Government’s decision in June 2019 to reduce tenants’ fees and cap most deposits at five weeks’ rent.
Objectives and solutions
The key objective of deposit replacement was to provide a solution which took away the need for an upfront deposit and replace it with, typically, a one off non-returnable fee of a week’s rent but with the tenant still legally responsible for any loss or damage at the end of the tenancy. At the time these schemes were launched there were already anxieties expressed about the potential for mis-selling of these policies and in recent months we have seen the BBC, CAB and others report on allegations of mis-selling, with tenants advising that in some cases they were unaware that they remained liable for costs incurred. In addition, there are also concerns that not all schemes are FCA regulated, so what happens to the insurance protection if they go bust? Similarly, some schemes are charging fees to tenants to raise a dispute. (This is also why TDS decided to work with Zero Deposit; it is fully FCA regulated with strong controls to prevent mis-selling and does not charge fees for disputes).
However, I am now much more exercised by the Government’s promise in the Queen’s Speech to introduce Lifetime Deposits in England. You won’t find much detail about this proposal anywhere and that’s because the detail has not yet been worked up.
At its heart, Lifetime Deposits is a fantastic political idea, designed to appeal to those renters who have to find another deposit whilst they move to a new property. The Government wants to avoid the need for renters to pay for two deposits and thinks the solution is to allow a single, ‘Lifetime Deposit’ to ‘move with the tenant’.
A Lifetime Deposit is a fantastic idea, appealing to renters who must find another deposit when they move on.
For many commentators this is simply the ‘passporting’ concept: allowing the tenant to move into a new tenancy without a full deposit on the basis the deposit will be paid when the tenant receives it back from their previous landlord but with some form of insurance guarantee in the event of any shortfall.
All of this is very complicated but fundamentally I now don’t think that ‘passporting’ meets Boris Johnson’s vision of a Lifetime Deposit, so we all need now to think more radically to “get Lifetime Deposits done”.
So, here’s a shopping list of suggestions but how many of them pass the Lifetime deposit look and feel test?
- A Government Help to Rent Deposit loan?
- Short-term deposit replacement gap insurance?
- Reducing deposits to 3 weeks allied with mandatory rent insurance paid by landlords?
- Requiring all deposits to be paid by instalments over the first 5 months?
- Requiring deposits to be delayed until month 3 of a tenancy?
- Save as you rent levy to build up a deposit fund?
- No deposit but with a levy to pay for mandatory ADR?
All ideas, but none of these looks like a ‘Lifetime Deposit’. TDS is now looking at a radical idea which puts the tenant in full control of their deposit, that can be used on two tenancies for a short time. It will however require changes to legislation.
We do need to develop a product that looks like a ‘Lifetime Deposit’’. The current cash deposit system, the complexities around passporting and the issues around deposit replacement solutions just do not look like a ‘Lifetime Deposit’.
If we can’t deliver a Lifetime Deposit, we should not be surprised if government simply decide to ban deposits: now that might win some votes!