Scandal in the offing? Worries flagged up over agents mis-selling deposit replacement products

Suppliers themselves are admitting that there has been mis-selling by agents of tenancy deposit replacement products.

One provider has revealed that it has dropped agents for mis-selling its product or pressurising tenants. It also asked for agents to be ‘grassed up’ where there are suspicions of mis-selling.

Another supplier has claimed that there is a mis-selling of some insurance-based products, even where they are regulated.

The new concerns follow a BBC investigation which suggested that some letting agents are not making it clear to tenants that payments for replacement products are non-refundable.

Generation Rent has also levelled the accusation that some agents are focused on earning fees out of the sale of these products, to make up for revenue lost because of the tenancy fees ban.

Eddie Hooker, group CEO of Hamilton Fraser which operates both a traditional deposit scheme, mydeposits, as well as a replacement product, called ome, said: “We consider it important to ensure that tenants have full choice as to whether to find a traditional upfront deposit or to manage their cash flow by opting for a deposit replacement product.

“However, tenants must always be fully aware of the terms and conditions of whatever choice they make.

“With a traditional deposit, this means reading the tenancy agreement to understand when a landlord can deduct monies from their deposit, and for a deposit replacement they understand that they will always be responsible for deductions at the end of the tenancy even though they will have paid a fee for the product.”

He said: “My issue has never been with the replacement products themselves, rather how they are sold and by whom.

“I’m not sure that all products put the tenant at the heart of the decision-making process even though the law states that tenants must be offered a choice of both a traditional deposit and a replacement product.”

Separately, a spokesperson for deposit replacement provider flatfair said: “It is key that consumers need to be able to make informed choices, especially in an industry which is still in its infancy.

“What needs to be made crystal clear is that there is a key difference between insurance solutions charging tenants excessive or recurring fees and payment technology companies like ourselves who offer tenants a transparent one-off fee without hidden costs.

“From the outset, we offer a clear sign-up process where tenants have to agree to statements making it clear of our offering, including the fact that the membership is non-refundable and is an optional alternative to a traditional deposit.”

“The BBC article refers to insurance solutions, which despite being FCA regulated are being mis-sold.

“Some insurance solutions count estate agents among their investors, which removes any sense of independence.

“Rather than being an insurance product, flatfair is independent and built upon the latest payment technology, which means tenants can rent their home through just their debit card – in much the same way as you would checking into a hotel.

“Although flatfair was not the subject of the BBC piece and was not used by the customer featured, this highlights the importance of our mission to drive a fairer, more transparent and accessible rental market that everybody trusts.”

Jude Greer, co-founder and CEO of Reposit, said: “When we founded Reposit in 2016 as the first deposit alternative offering in the UK, we believed that FCA regulation, security and transparency had to be at the core of our business.

“This is ingrained to the very core of how our company does business. Because we are FCA regulated we are audited regularly to ensure that we treat our customers fairly and clearly communicate our product.

“We consistently endeavour to provide the highest standards of training to our partner agents to minimise any misinformation or mis-selling. Tenants are provided with detailed marketing materials and our full set of TC’s is publicly available.

“To maintain our high standards, Reposit has cut off partners from using our product when it has been mis-sold or when tenants have been pressured into choosing Reposit.

“However, we can only speak for ourselves. Whilst most providers look similar there’s a huge variation in the levels of regulation and transparency, which is not only a threat to the entire industry but can be very confusing to tenants and agents alike.

“We therefore ask agents to do their due diligence in order to make an informed decision for their customers.

“If you know of Reposit being offered without all the right information being shared prior to signing, please contact our team.”

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35 Comments

  1. seenitall

    wow – its like a bolt out of the blue……never saw that coming……..are the owners of these companies stupid? or greedy or both?   was a bad product,  was a bad idea. was so predictable. lets see how those potatoes taste now Gen rent and Shelter have got their forks out.
     
    with how legislation is now tenants can do no wrong. If a tenant say they were misold then its going to be on the Agent  to prove they wernt.   Would this then be a prohibited payment if they were misold?  £5000 fine per tenant?    
    wow lovely tasty potatoes. 

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    1. Robert_May

      The idea behind replacing deposits isn’t a bad idea. Having, in theory, £48b tied up in deposits is great for the people who look after the £48b but not so great for those who have to do the 414,000 bits  tightly controlled legislation administration each month for no real benefit whatsoever.

      A simple annual arrears and damages insurance policy the tenant can buy if they choose to ought to be  all that is required to do away with deposits and the deposit replacement policies being discussed as rogue.

       

      Having on average £1050 tied up as a deposit, doesn’t benefit tenants, doesn’t benefit landlords or agents and it doesn’t provide a meaningful deterrent against arrears or damage. Tradition  isn’t a reason to  collect a lump of cash that’s then tied up for 22 months at a time but isn’t available to the tenant when moving tenancies.

       

      There is a need to get rid of deposits but perhaps the solutions that have emerged so far aren’t  what’s needed

       

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      1. Woodentop

        Sorry you got that all wrong.

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        1. Robert_May

          I’m happy to have the discussion.
          When interest rates fell and then tenancy deposit legislation introduced the administration it did, along with a bias in favour of the tenant.
          Deposits became a burden that I have happily lived without since 2007. Not a penny in arrears and  no damage that wasn’t fair wear and tear or not the tenants fault.  
          If you run the numbers of a typical tenancy, the £149 deposit balance of a tenancy that goes ever so slightly not perfect after S21 is served pays trades for a day and no materials. If  deposits work for you carry on, if  deposit replacement schemes work for you carry on but £4.8b at BOEBR is enough to generate some resistance from those who look after it.    

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      2. drasperger

        Agreed but current offerings are blunt instruments. The £48b could of course be better used in the interests of tenants.  If only half of all deposits held is ever needed……..(the new deposit comes in before the old one goes back) that could free up £24b for building affordable housing accessible to tenants in the first instance, and built based on mapping densities of tenants.  £24b could attract further lending at some very favourable rates……. Tenancy Schemes could even provide mortgages?  Even Shelter might support such an idea?

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        1. Ian Narbeth

          “…that could free up £24b for building affordable housing accessible to tenants in the first instance”

          That’s not how life works. There isn’t some massive fund of £48 billion that can be used to build affordable housing. (I think the figure is out by an order of magnitude. With about 5 million rented properties in the UK that would mean an AVERAGE deposit of £9600. The figure of £48B is probably the total rent paid annually by all residential tenants.)

          drasperger, you are making the same mistake as the Government did in their flawed paper about “passporting” deposits in last year’s “consultation”. There is no spare money that can be used for building houses. Every deposit is security for a tenant’s obligations. The full amount of the deposit needs to be available to the landlord in case his tenant defaults. The fact that 5 out of ten or even 9 out of ten tenants don’t default is irrelevant in just the same way as if I want to borrow £100,000 to buy a flat the bank doesn’t say: “Well there’s only a 5% chance you will default so we’ll just need security valued at £5000.”

          As for mis-selling deposit replacement products, I can foresee tenants saying they though that (magically) a problem could be solved without cost to them. The Government is at fault for encouraging tenants to believe there is a magic wand to deal with the problem.

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          1. Robert_May

             sorry about the missing decimal point  I’ve cause some confusion.  The money held on deposit is only of any benefit to those who have it in their vaults to lend out (10x what’s held)

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            1. Ian Narbeth

              Decimal, Schmecimal, what’s £43,200,000,000 between friends?

              The deposit is generally not held in the landlords’ vaults. It is held by the deposit trustee, DPS, TDS etc. Do they publish what their profits are?

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    2. Will2

      Post Tenancy Fee act could see at fine of £5000 for first offence and criminal record thereafter if they are insisting on the tenant taking one of these policies as a condition of taking the tenancy; as I understadnd it.

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  2. RedRebel

    Once again no mention of the thousands of tenants that benefit from this. My younger brother used a no deposit option, it was explained by his agent that he had a choice and he was happy to keep his money in the bank. Agents need to keep a record on CRM that they have explained the choice to tenant and informed them that the cost is not returned.

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  3. J1

    Start messing around with tried and tested methods that are sound, in order to make a few quid at the expense of people who don’t understand what they are signing up for ; and you are asking for trouble.

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  4. mmmm

    I’m not sure it matters what type of scheme an agent offers tenants. What matters is the way it’s been sold and whether a choice between that and a traditional deposit has been offered.

    I hope everybody will be able to demonstrate (prove) that a choice was offered! Otherwise I fear that in the face of complaints/claims, it will be assumed that it wasn’t…

    I guess it would be the agent who is responsible for any refunds/compensation rather than the scheme provider?

     

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  5. David M

    I’m sure that no company would jump in to these without carrying out a full risk assessment. For me the Deposit Replacement schemes are as close as you can get to sub prime lending, if a Tenant can’t afford a deposit then the mantra seems to be lets make a quick buck by charging them a high interest rate. The irony being they aren’t actually lending money, they are charging a fee on the promise that they can pay the money if it’s needed further down the line. Looking at the maths on a typical Deposit Replacement the “Fee” to the Tenant is 1 weeks rent plus a renewal fee either at 6 or 12 months. If we forget the renewal fee and work the sums out on purely the 1 weeks rent then you can easily see the cost to the tenant is not good and probably this should be declared. A weekly rent of £300 (£1,300pcm) would traditionally have a 5 week deposit of £1500. If this was a 12 month Tenancy that would be the equivalent of a 20% interest rate loan. Also if the tenancy runs for only 6 months….that fee becomes 40%  – I believe there is no deduction if the Landlord ends the tenancy early. What is questionable is as this is a financial product, under the cooling of regulations, the Tenants might be able to cancel the Deposit Replacement within 14 days of purchase with no penalty, potentially leaving tenancies in place with no Deposit or Deposit Replacement product…….

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  6. drasperger

    The conflation of no deposit schemes and mitigation of the loss of income after the Tenant Fee ban have created a situation where some agencies have pushed these products hard to collect the commission.  These agencies are the ones who will trigger the mis-selling scandal that is coming, and independent well intentioned agencies will be caught up in the mess.  How many of those selling these products are declaring the commission they are making?

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  7. Woodentop

    The tried and tested system of a holding deposit works very well for what it was intended to do. Its people playing around with liberal ideas to make it easier for tenants who  can’t afford and shouldn’t be in PRS, that is one issue.
     
    The other issue is the money makers who have jumped in with two BIG feet selling an idea to agents and tenants that they have found a solution to getting them into PRS. No they haven’t come up with a solution, they are creating an even bigger one and not just over referral fees, miss selling and horrendous costs.
     
    The third issue is …. PRS is going to be on the recieveing end of even more legislation!!!!!!!!!!!!
     
    DROP NO DEPOSIT SCHEMES. Your tenant must be able to afford a reasonable deposit and why it is so important for landlord and agents or if they can’t are high risk to be in PRS. Its not perferect but no-one has come up with a better solution that makes a tenant behave themselves.

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    1. CountryLass

      The local councils near me, and I assume others, offer a bond scheme for housing association tenants or ones who receive housing benefit and rent in the PRS. I’m not a huge fan of it, but I operate under the assumption that this has all been vetted by the council and government and is therefore as bullet-proof as it can be. My (admittedly vague) understanding of how they work it is that they agree to pay for any damage or arrears, they take small payments from the tenant to get to the deposit cap, and then reclaim the money from the tenants through benefits or fines or however they choose to do it if needed.

       

      Still not completely happy with it, but I will accept that where I have declined deposit replacement schemes.

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      1. Woodentop

        We see Bonds but after 6 months the bond is null and void. What does the tenant then do? They are supposed to be saving up for one and when they don’t, you have no deposit protection. As I said, without a financial commitment by a tenant in PRS, you are playing with fire on affordability.

         

        We are also seeing rent guanrantee for first 6 months, as its cheaper to pay one months rent for the tenant than the B&B charges for one week!

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  8. ChumpExecutive

    There is a clock ticking under all of these schemes for the simple reason that they are a relatively recent innovation and the average tenancy is lasting longer (30-months+ on our database of 56,000 units under management) so the crystallisation of misunderstanding and mis-selling has yet to hit in any volume. Also, financially its a Ponsi scheme structure as things stand with far higher cash inflows into these businesses with low levels of claims, so all is well. But like an agent who has been dipping into deposits and using incoming deposits to meet the requirements of returning deposits, the moment of truth comes when the rate at which new tenancies are being formed falls off. I’m just not convinced that a tenancy which starts today on a zero or nil deposit basis will still be insured or warranted in 10-years time. Interestingly, it’s not the tenant who will suffer as he or she is no better or worse off – they remain personally liable for the damage (if any) caused over the decade. But the landlord might be left with county court action as his only recourse.

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  9. Penguin

    This is the next PPI. Simples.

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  10. Paul

    Well the product needs to be regulated first and foremost.
     
    With tenancies now lasting between 2-3 years, tying up £1500-£1800 for that period of time, isn’t about affordability, it’s about flexibility. With the majority of tenancies ending with no issues, to have that sort of cash tied up, doesn’t make sense.
     
    The problem comes when there is no regulation and the product isn’t explained to the client correctly, or is made a condition (which is illegal) of the let.
     
    If a tenant can’t pass the referencing process, then they can’t rent the property, full stop, regardless of wanting or not wanting a deposit replacement product.
     
    By introducing a product to the tenant which requires them to go through a process that explains what they are about to commit to, reminding them throughout, then you shouldn’t have any issues. It then becomes an informed choice by the tenant and one that the majority of tenants understand and are actually looking for. 
     
    With all things, if not correctly monitored or set up in the first place, there will be providers that do not provide the best option to your tenant or landlord, hence the need to look at the offerings in detail, before going with a particular provider.
     
    Everyone has a choice, even agents to offer the product or not and there will always be people that claim they didn’t realise, hence why you need the right processes in place and documentation.
     
    Landlords need protection and tenants need more affordable options, so where is the solution?  When you change legislation and adopt policies that change the current system, external entities will step in and try to fill the void, hence deposit replacement.
     
    Are some of the current solutions in place a problem waiting to happen – yes.
     
    Can you find a solution, that works for all parties and is fair and fulfils the needs of your clients – yes
     
    Can tenants still stump up 5 weeks in cash – yes
     
    Can you chose to offer a replacement product or not – yes
     
    It’s not for everyone, but until it’s made law that you don’t need to pay a deposit or the landlord has to buy a policy, then you have to provide your clients with all the available options, after you do your own research.  

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  11. Woodentop

    What is the fundamental reason for needing a deposit that is paid by a tenant? Please do not say it covers damage when it happens, that is not the answer.

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    1. jeremy1960

      The fundamental reason as far as I am concerned is and has always been to ensure that the tenant has skin in the game and takes responsibility for their actions.

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      1. Woodentop

        You just won an Oscar jeremy1960.

         

        If they didn’t have a commitment, there is no responsibility on their part to behave. Of the 90% or so (whatever the figure is) that is suggested don’t have issue with a claim, so not necessary for a deposit ……… maybe it’s because a high percentage of them would have claims against them if they didn’t have the deposit commitment, ……… its that they fear of losing their money.

         

        Insured schemes = I have paid for something and I can’t get the money back, so might was well use the cover and not bother if I cause damage or stop paying the rent, let the insurers sort it out. They don’t seem to see that some of these insured policy then chases them for the money … they haven’t got!!!! or the misery the landlord and agent have to go through to get the property ready for the next tenant which isn’t covered by the insurance policy.

         

        Will2 is correct above, you are making the tenant pay for a policy to provide risk cover for another. Where is the insurable interest?

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        1. Paul

          Understand the point about skin in the game, but the tenant runs the risk of a CCJ, because they will be chased and will be taken to court.
           
          Only someone that isn’t that bothered about that would let it happen, which is not the majority of tenants.
           
          Why would a person who can pass references and has a good credit history want to risk that?  They wouldn’t unless it was a situation beyond their control or they didn’t care, both of which are going to be the rarity and in that instance the landlord is covered, which is the ultimate concern for a landlord.  Both situations can happen with a cash deposit or without.
           
          Re the point on having no money when they get chased, there is no reason to believe this would be the case.  Just because the are disputing dilapadations doesn’t mean they haven’t got any money and if it’s a rent arrears issue, then that’s a different ball game, but your landlord get paid out of the deposit and you go after the rest in the normal way.
           
          Going back to the point that they don’t seem to know, that’s where the quality of the provider becomes so important and if it’s a regulated product they will be taken through the process and understand.

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          1. Woodentop

            Paul, Where do I start … you clearly are not involved in Lettings!
            1. Bad tenants don’t give a stuff about CCJ’s, that is why the court system is filled up with them and debts is no deterent as many an agent will confirm.
            2. Tenants having their own money in the deposit and at risk of not getting it back, helps make them behave. Many an agent will confirm this. There are the few who don’t give a stuff even if they will lose the deposit but they are the minority.
            3. Tenants having no money, if they are chased ..‘.. there is no reason to believe this is the case’ …LOL. This why I know you have no experience of lettings agents.
            4. ‘After the money in the normal way’. To coin the phrase; ‘Professional non-paying tenants’ run rings around landlords every day and lose £k’s chasing with no end result.  You need to start watching “nightmare tenants slum landlords” on the TV!!!
             

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            1. Paul

              The scenarios you talk of are a rarity in comparison to a normal tenancy.

               

              Why are we now talking about bad tenants?

               

              We don’t want to be letting to bad tenants, let alone giving them a no deposit alternative!

               

              This is about if a no deposit scheme is good or not?  If it works for the tenant and protects the landlord, then what’s the issue?

               

              I agree a bad tenant doesn’t care, that’s my point, no deposit scheme or cash deposit isn’t going to stop a bad tenant, but a no deposit scheme that follows through in chasing down the debt is just as good and really good to get a tenant to cough up if they have a good credit rating.

               

              Losing a cash deposit or getting a CCJ will mater to a tenant, there is an incentive there to behave.

               

              Are you saying that every tenant that ever causes damage doesn’t have money?  Why are you linking end of tenancy disputes to having no money?

               

              You seem to be linking anyone taking out a no deposit scheme to having no money?

               

              To rent out the property they need to pass references?

               

               

              When a dispute arises, some may believe they are right, some might be chancing their arm, but when it comes to it, most will negotiate a settlement, because they don’t want a CCJ.

               

              This is about giving the majority of tenants who are good payers and have good credit another option.

               

              Your bad tenants are always going to be bad.

               

              As for having no idea about lettings, that’s sent me to bed with a smile.

               

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              1. Woodentop

                I bet it did, but I have to say you are niave in your understanding of how rental practice does work and not how it should. When you have found the magic wand for the perfect behaving tenants please pass it around. Some of the biggest rougue tenants are the wealthy! You need to work in a letting agents office … then reality would hit home … rather hard. As I said before you need to watch “nightmare tenants slum landlords” on the TV!!! All these landlords with nightmare tenants thought the same as you. Then turn over to “The Sherrifs are coming” if you want to find out how hard it is to chase people for debts.

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                1. Paul

                  I think you’re arguing with yourself?
                   
                  Now we are talking about professional bad tenants?   Where did I say that bad tenant’s were not wealthy or didn’t have money?
                   
                  The only person saying that was you?   Your quote: “They don’t seem to see that some of these insured policy then chases them for the money … they haven’t got!!!! ”  
                   
                  I’m talking about the majority of tenants who have something to lose if they get a CCJ. Not the professional rouges of which there are many.
                   
                  I say again, these rouges you talk of will knock you for all the tea in china whether they had a cash deposit or if they had a no deposit scheme.  Taking out a no deposit scheme doesn’t turn you into a professional rent dodger.
                   
                  What has anything you have said got to do with if a no deposit scheme is good or not?  That’s the debate?
                   
                  You seem to be focusing on the minority of tenants, maybe you have had a large amount of bad tenants?  Maybe you need to look at your vetting process?
                   
                  Maybe stick to the debate rather than trying to work out my capacity in this field? 
                   
                  I’m not calling into question your business acumen because I don’t agree with you?   You’ve made some valid points, but not in context of this debate and there are points that I’m not even arguing?
                   
                  If you take out a no deposit policy, that is regulated and the company will pursue through the courts to get a CCJ, the tenant will have an incentive to behave, end of.
                   
                  Let’s not forget only about 1% of tenancies end in dispute and not all go against the tenant.  So unless you think that taking out a no deposit product is going to turn your tenants into property smashing, uncaring, unclean Zombie infected people, I don’t think you have too much to fear!                      

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    2. Ian Narbeth

      Why can we not say it covers damage? It provides a cushion for the landlord and in the case of damage to the property gives the landlord the prospect of recovering something. We operate HMOs and regularly have small claims for breakages and minor damage. If we did not have deposits we would be left to issue legal claims against tenants at great expense and to pursue tenants (some of whom come from abroad and leave the UK at the end of the tenancy) through the courts. Deposits certainly are a good answer for us, Woodentop.
      Read about “moral hazard” if you think not taking security is a good idea.

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      1. Woodentop

        Ian Narbeth .. you got the wrong end of the stick. I am all for taking a deposit. I am against “insured no-deposit schemes” that do not provide a commitment by tenants to behave. My question was what is the fundamental reason for taking a deposit. So many people are hooked up on, it is to do with covering damage when that happens. Claiming for the damage is not the fundamental reason but an ‘after an event’. Prevention should be the goal and is created by making the tenant risk losing their own money and a slight safety net should they fail to behave.

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        1. Ian Narbeth

          Insured no-deposit schemes leave the tenant at risk of a claim so the tenant has an incentive to behave. It is idiot commentators who say “It is unfair that the tenant pays for the insurance and still has to pay if there is damage” who give tenants the wrong idea. If they stopped and thought about it for a few seconds, they would realise that unless the insurer can reclaim, tenants would be free to cause as much damage as they liked with impunity.

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          1. Woodentop

            But that is the problem …. I’ve paid for cover, might as well use it. Catch me if you can! Meanwhile the landlord and agent is running around like headless chickens incurring additional expenses and delays in getting the property back on the market … if at all. Many landlords throw the towel in.

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            1. Paul

              For a very small minority.  If you do your checks right and know your stuff as you cleary think you do, you will weed out all of the basd tenant’s surely? 
               
              What’s your deposit claim rate % What’s you rent arrears %  If they are nice and low, what are you arguing about?

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  12. GPL

    Interesting debate.

     

    Reminds me why I always steered clear of Letting, despite the steady income which it can provide.

     

    My take on Lettings was either do it well or leave it to those who do it well.

     

    As an outsider to Lettings it seems as if there are more & more rules/regulation, tenants seem to be overprotected and good landlords exiting as they view the business not worth the hassle ……and all of that before one gets the Letting Agents view on their part in the Lettings jigsaw.

     

    Anyway, interesting to read different views from those on the inside.

     

     

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    1. Woodentop

      Good observations GPL. The way things are going, your best bet is don’t get involved in lettings. 
       
      It has come to my attention that in Wales they have announced it is going for 6 months assured shorthold with no prior notice to end tenancy and then 6 months notice to end a tenancy can only be issued afterwards, so they get the first 12 months come what may unless its arrears. ASBO tenants will be a nightmare.

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