Landlord Products / Services
God dayam, boy. “No Deposit” schemes have been blowing up lately, ain’t they?
Also commonly referred to as “zero deposit“, “deposit-free renting” and “deposit replacement” schemes. Pick your poison. I’m going with “No Deposit” from here on out.
Whatever you want to call her, one thing is fo’ sho’, letting agents are pushing the product harder than Pookie – my local, toothless crack dealer – as a viable alternative to the traditional cash security deposit.
Sounds interesting. But I ain’t convinced.
Unless I’ve misunderstood the blueprint, all I’m seeing being touted is a goofy, half-baked insurance policy, disguising itself as a legitimate solution to a problem that I don’t even believe exists.
Alas, this has all the makings of a good ol’ fashioned cash-grab. Prove me wrong!
Whatever my position is, it’s always important to be aware of the options available to us, and just because this rubber johnny isn’t a good fit for me (way too small, obvs), it doesn’t mean it won’t be a proper cute and snug fit for you.
I appreciate that some of you will already be aware of the scheme and some of you will even be using it, but for everyone else, let’s do this!
What is a “No Deposit” Scheme?
- A No Deposit scheme is an alternative to tenants paying a security deposit.
When it comes to deposits, landlords can preference one of the following options at the start of a tenancy:
- don’t take a security deposit
- Take a security deposit (and secure it into a tenancy deposit scheme)
- Sign the tenant up to a No Deposit scheme
- No Deposit schemes are services for tenants to sign up to, not landlords.
Once a tenant signs up, their landlord is protected with 6 – 12 weeks’™ worth of rent against damages and rent arrears incurred by the tenant. Think of it like an insurance policy paid by the tenant.
They became particularly popular after security deposits [in England] were capped to an equivalent of 5 weeks’ rent when the Tenant Fees Act 2019 was introduced.
- The schemes are operated by private companies, they are not Government run or approved. Welcome to cowboy county!
- There are a handful of No Deposit schemes in the market, and similarly to insurance providers, each vary with their offering (so make sure you read the details of the one you’re potentially opting into if you’re a buyer).
Most tenants sign up through a letting agent, who will likely work with their preferred supplier/affiliate partner. it’s also possible for self-managing landlords to sign up their tenant directly with a scheme.
- The sales pitch for opting into a No Deposit Scheme over a traditional security deposit is usually focused around the following areas:
- Landlords get better protection (6 – 12 weeks’ worth of rent).
- It lowers the costs for tenants (it’s cheaper to opt into a No Deposit scheme than paying a deposit), and it means they don’t have money tied into a deposit scheme for the duration of the tenancy.
- Allows tenants to move-in quicker (because they don’t have to save for a deposit).
- Claims are paid out faster.
How do No Deposit schemes work?
I’ve seen the mechanics of the scheme presented in various forms, some rather misleading, but here’s the gist of it (some of the details may differ depending on provider):
- Sign up to a No Deposit scheme
The tenant pays one week’s worth of rent to sign up to a scheme, and some also apply a one-off setup fee and an annual renewal fee.All fees are non-refundable.
There is no cost to the landlord (if you suddenly feel light-headed and in need of a wet flannel, I understand. This is a rare and unfamiliar novelty).
Once a tenant has signed up, the landlord is protected by the scheme (basically, the insurance policy is active).
- Tenants need to be eligible for the scheme
Similar to how tenants need to qualify for rent guarantee insurance (RGI), they also need to be found eligible to qualify for a No Deposit Scheme.This usually means the tenant or their guarantor needs to pass the usual referencing checks.
- At the end of the tenancy
If there are no damages or unpaid rent, then the No Deposit Guarantee will end and there is no further action required. - Settling claims
If there is a successful claim, landlords will be paid within a couple of days.Note, if claims exceed the amount guaranteed by the scheme (i.e. 6 weeks’ worth of rent), landlords will need to pursue alternative methods if they wish to claim the overspill (i.e. take legal action), similar to when losses exceed the security deposit amount.
- Managing disputes
If there is a dispute over a claim, then your case will be processed by an adjudication panel. - Landlords are protected, NOT tenants
No Deposit schemes guarantee and protect landlords, not tenants! I think this is the most misunderstood (or perhaps, mis-sold) aspect of No Deposit schemes!Landlords are paid out by the scheme for any successful claims, but tenants remain completely responsible for covering any financial losses or damages due to the landlord. No Deposit schemes do not insure tenants, and therefore will NOT cover their costs.
Essentially, the scheme quickly pays out any successful claims to the landlord so they don’t have to wait around, meanwhile, they will set their bloodhounds loose to recover the incurred costs from the tenant.
Popular No Deposit Schemes
Before I pounce and take a gigantic steaming dump all over No Deposit schemes, I do want to highlight a couple of the more popular schemes available. it’s the least I can do. Like I said, the scheme might be a better fit for you. No judgement from me.
The reality is, whether I’m a fan or not, No Deposit schemes have become a popular and successful option.
(I have absolutely no affiliation with any of the companies below).
| Scheme | Rating | Landlord Protection | Regulation | Setup fee | Service fee | Annual renewal fee |
|---|---|---|---|---|---|---|
Scheme | Rating TrustPilot Reviews | Landlord Protection10 weeks’ | Regulation | Setup feeN/A | Service fee*One week’s rent | *Annual renewal feeN/A |
Scheme | Rating TrustPilot Reviews | Landlord Protection6 weeks’ | RegulationFCA | Setup fee*£45 | Service fee*One week’s rent | Annual renewal fee*£17.50 |
Scheme | Rating TrustPilot Reviews | Landlord Protection8 weeks’ | RegulationFCA | Setup feeN/A | Service fee*One week’s rent | Annual renewal fee*£30 |
- *Tenants are subject to the fees, not landlords!
- *It’s unclear whether the prices displayed are VAT inclusive (which is so bloody annoying), but I suspect the prices are exclusive of VAT!
Please note, I try my best to keep the information of each service up-to-date, but you should read the T&C's from their website for the most up-to-date and accurate information.
On a side note, the accumulation of TrustPilot reviews paints an interesting picture, which allows us to speculate. Predictably, a lot of the positive reviews seem to be left by tenants shortly after they moved into their new home.
So the first point is, the scheme does help tenants secure tenancies. Great. But obviously that only tells half a story – and actually, that’s the least important part from the landlord’s perspective – because it’s only once we’ve done a full circle (i.e. when the tenancy ends) can we truly and fairly judge the service.
The handful of negative comments I did read were mostly left by disgruntled tenants and landlords after their circle was complete. Make of that what you will :)
What’s also interesting (and worthy of a brief chuckle) is that the one company that is unregulated by the FCA offers the most landlord protection, and the one that offers the least protection is the most expensive (6 weeks’ protection is literally only one more week than the deposit cap, so like, what’s the point for landlords?). The one that looks like the objectively best option is the worst rated. What a comically odd bunch of socks.
I genuinely don’t know which one I’d pick if I had to choose.
Creating more problems than real solutions
I’ve gone through a few of the No Deposit websites and I must admit, they do a great job at selling it.
They almost had me convinced. Fuck, there were moments when I wanted to become a tenant just so I could sign up to a scheme and spend less on a deposit and more on the things I love (that’s literally one of the slogans I came across. Amusing!).
The problem is, however, after I crunched the numbers – and rechecked them over and over – I could never end up with a net positive result. In other words, the scheme solves one problem, but seems to create more in the process.
It all sounds fab in principle, but not in practice, especially when you start considering the trade-offs that come with it.
- Tenants will end up paying more
No matter how you slice it, good and bad tenants alike will end up paying more in the long-run by using a no-deposit scheme.If tenants don’t cause any damage or rack up any rent arrears, they’ll still be subject to the non-refundable service fees.
it’s a confusing message, because the strategic marketing spiel gives the impression that tenants will be better financially off using the scheme. But they won’t.
- “Better protection” [for landlords]
So the argument is that No Deposit schemes provide better protection for landlords compared to traditional cash deposits.I’ll play ball. So let’s say that’s the case.
But now why don’t I do one better? I’d be significantly better protected with a regular old cash security deposit and regular old landlord insurance, which provides wider coverage against damage and rent arrears.
Moreover, tenants can also purchase insurance that will actually cover rent arrears and damage, which will likely cost them less than the fees applied by a No Deposit scheme.
- Lovely-jubbly earner for agents
It came as no surprise to learn that agents have been allegedly hard-selling No Deposit schemes to landlords and tenants because they’re earning up to 30% in commission. To be fair, agents aren’t the only folk milking this cow, I’ve seen a lot of landlord services pushing it.I ain’t saying that could be a motive for mis-selling the product to increase revenue, but I certainly ain’t saying it ain’t either.
Also, let’s not brush past the fact that if 30% referral fees are being tossed around, then there’s clearly plenty of profit in this game.
(Urgh! Lord have mercy. I’ve probably pushed the knife in too deep at this stage, but I could have got in on some of that sweet action. This scathing blog post may prove to be a horrendous business decision! But be warned, if this page eventually gets edited into one big cheese-ball sales pitch, the odds are my integrity has been compromised and I’ve accepted a giant brown paper bag full of cash. Your boy’s also gotta’ eat!)
- Tenant loses incentive to protect their deposit
From my experience, most tenants are mindful of the fact that their security deposit is always under threat, so they are incentivised to protect it by complying with the agreed terms of the tenancy. But what are they protecting if they have nothing on the line? - Do landlords really want tenants that can’t afford a deposit?
This is the biggest kicker for me, and why the scheme seems like it’s only creating further financial weakness and instability in the system, by ultimately helping tenants occupy properties they can’t really afford in the first place.I don’t understand why any sensible landlord would feel comfortable fast-tracking a tenancy for someone that either can’t or doesn’t want to pay an upfront cash deposit. We’re entering defying common sense territory here.
As I’m typing this, I’m literally saying to myself, “WTF, this shit sounds so ridiculous!”
- Wouldn’t we be enabling poor financial decisions?
it’s a serious question.I just know that if I can’t afford a deposit (for whatever), I’m clearly shopping in the wrong aisle.
So should I be facilitating someone that’s also in the wrong aisle?
- Magnet for poor quality applicants
I know if I start parading around the fact that I’m down with zero deposit schemes I’m going to get inundated with unsuitable applicants. I know because it’s not rocket science.What concerns me is the thought of letting agents convincing landlords that zero deposit schemes is the way to go because it provides better protection. But unbeknown to the landlord, they’ve drastically lowered the barrier to entry, creating a magnet for applicants that wouldn’t ordinarily stand a chance if a traditional cash deposit was required.
Do I know for a fact it’s happening? No!
But then again, I didn’t fall off the turnip truck yesterday either.
The wrap-up
The only objectively useful benefit I can extract from this freakshow is that it creates a lower barrier of entry for tenants, which is always cool. However, the more I pick at this scab, the more it looks like a smoke and mirrors play, primarily because the scheme creates an economy where tenants are lead to paying *more* for a service that grants them access to a property they probably can’t afford.
So even though this solution is working for thousands of tenants and landlords (you might be one of them), I can’t get behind it. If our system gets pumped full of this crap, I can easily see it toppling over. It all feels eerily similar to 100% mortgages. Impending doom.
Now I’ve stuck my head through the doors, I can’t shake off the whiff of artificial marketing hype and corporate greed, with vulnerable targets in the cross-hair. it’s like the lingering stench of a decaying donkey corpse in the scorching heat *shudders*
As for my own protection, as a landlord, the scheme, ironically, demands me to take on more risk in some ways (even though the contrary is the cornerstone of the sales pitch), by prioritising speed over suitability, which is clearly as stupid as it sounds. If not more.
Am I saying that the current tenancy deposit protection scheme is a flawless solution? Does a bear shit in ceramic toilets? Fuck no. But I am saying it’s better than the zero deposit grift. So for now I’m sticking with upfront cash deposits and Rent Guarantee Insurance (RGI).
But please do tell me if you think I’ve got this one wrong.
The crux of my concern is that I don’t think No Deposit schemes actually resolves a genuine problem, it just makes you think a cash security deposit is the problem, rather than the cost of living crisis, inflation, sketchy-as-fuck fiscal policy, and someone’s unfortunate financial position. Classic case of misdirection. That’s why I think this product is no more than a cash-grab.
Tell enough grown-arse men that Hair-in-a-Can is the solution for male pattern baldness and you’ll end up with some customers.
Hard pass.
Landlord out xoxo
Disclaimer: I'm just a landlord blogger; I'm 100% not qualified to give legal or financial advice. I'm a doofus. Any information I share is my unqualified opinion, and should never be construed as professional legal or financial advice. You should definitely get advice from a qualified professional for any legal or financial matters. For more information, please read my full disclaimer.
Sadly by the time I get my property back the ridiculous deposit won’t scratch the surface of the cost it will be to right my wrecked property! It’s a joke. Most of the damage done by my tenants won’t even be covered which is criminal in my eyes. They damage something and it’s classed as wear and tear. Eg a wrecked large worktop! I will never rent again. I dread to think how much money I’m going to lose. I pretty much have worked out that at least two years rent will be gone down the drain by the time they go. That’s not counting the thousands to get it in a state to sell it. To myself the deposit scheme is a waste.