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You may have read recently about a new way for landlords to protect their buy-to-let properties from damage and unpaid rent, and to make it easier for tenants to pay for it. Or perhaps you haven’t, considering our recent survey revealed that 91% of landlords and 92% of tenants hadn’t heard of the new scheme. The scheme operates by offering tenants monthly premiums paid in lieu of a deposit. These are much lower than an upfront deposit amount and would still protect the landlord from loss of rent or damage. Currently, a tenant will pay the equivalent of between 4-6 week’s rent to a landlord, which is held in a government-approved scheme to protect against losses incurred during the tenancy. 

With the national average asking rent at £789 (from Rightmove data), this means tenants are paying as much as £1092 in tenancy deposits, or a whopping £2658 in London where average rents are £1920. Although tenants receive their deposit back at the end of the tenancy, minus any deductions for damage or unpaid rent, their deposit is largely tied up for the entire time they are renting.

Our survey also revealed that 35% of landlords didn’t think an insurance scheme was a better than paying a deposit, whilst 35% of tenants thought it was. However, 47% of landlords and 45% of tenants weren’t sure- showing the need for more information needing to be available for insurance scheme options.

We also found a disparity between landlords’ and tenants’ opinions over the difficulty of tenants raising a deposit previously- 57% of landlords said tenants hadn’t had issues whilst 55% of tenants said they had. An overwhelming 87% of landlords said they would be concerned that an insurance scheme wouldn’t cover damage or unpaid rent. 62% of tenants said they wouldn’t have an issue with a monthly insurance payment compared to a lump-sum deposit.

Landlords may be concerned that such a small amount, compared to a one-off deposit, won’t protect them for loss. They may also be concerned about a tenant’s affordability if they haven’t got savings for a deposit. On the other hand, landlords could find that with more tenants able to afford low monthly payments rather than a large deposit, they have a greater number to rent their property to. It also means they are free from compliance with the deposit scheme legislation. Tenants may be concerned that the monthly premium they pay is money they won’t be getting back, although overall it will cost much less. Many tenants can afford monthly payments but are unable to save a significant amount as a deposit- an amount that many tenants won’t be able to utilise until they buy their first property.

 It’s clear there is a need for these schemes to clarify how it would work- putting landlords at ease that they would be covered to the same level of a one-off deposit, and tenants reassured that the monthly payments are low enough to outweigh the downside of not receiving their deposit back.

 James Davis, CEO and Founder of Upad, commented;

“Alternatives to paying one-off deposits are always welcome, and these schemes are a great idea. Immediately, tenants will be free of the struggle of having to raise a deposit for a new rental before they have got their existing deposit back, and those who are unable to raise a deposit at all, or have no means of borrowing the money, could find themselves able to rent a far wider range of properties than they previously could. I am definitely in favour of such schemes and hope in the coming months a greater proportion of landlord will take this point of view.”


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By Lucie Geller
10 Nov 2017

Categories: Deposits, Buy to Let, Tenant Issues



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