More than £3bn of tenant deposit funds could be affected by government proposals to abolish insured tenancy deposit schemes, according to new analysis from The Letting Partnership.
The research examines the potential impact of plans that would require all tenancy deposits in England and Wales to be protected through custodial schemes, ending the current system that allows landlords and letting agents to retain deposits under insured arrangements.
The Letting Partnership estimates that around 4.7 million tenancy deposits are currently protected across England and Wales. Of these, just over 2.1 million are held in insured schemes, accounting for 45.6% of all protected deposits, while the remaining 54.4% are held in custodial schemes.
However, insured schemes represent the larger share of the money being protected. The analysis suggests more than £3bn of tenant deposits are currently covered through insured arrangements, compared with around £2.5bn held in custodial schemes.
The proposals have sparked debate across the lettings sector over the future role of insured schemes and whether landlords and agents should continue to hold tenant deposits directly. Industry participants have also raised questions about how any transition would be managed, particularly given that the market has settled into a relatively stable balance between insured and custodial protection models.
Should the changes be implemented, a phased transition is considered likely, with new tenancies entering custodial schemes while existing insured deposits remain in place until tenancies come to an end. This could leave many agents operating both systems for an extended period.
Chris Mason, COO of The Letting Partnership, commented: “The debate around insured deposits has often centred on whether landlords and agents should be permitted to hold tenant funds, but this framing misses the fundamental issue.
“Nobody, not the schemes, the underwriters, or the government, has a complete picture of the cash position sitting behind those liabilities at any given moment. From a client accounting perspective, that has always been the real weakness of the insured model.
“If the objective is greater transparency over tenant money, then the government is targeting the right problem.
“This isn’t simply a question of moving deposits from one protection model to another. The industry is potentially looking at a significant operational transition that could take years to fully work through, particularly if existing insured deposits are allowed to run off naturally. The focus now should be on ensuring that any change is implemented in a way that minimises disruption for agents, landlords and tenants alike.”
Government interference is unrelenting.
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I stopped taking deposits in 2007. Not because I had to, but because I did the maths.
The dispute mechanism that arrived that year was expensive, time-consuming, and structurally biased toward the tenant. Five weeks’ rent sounds like protection. In practice, against serious arrears or genuine damage, it was noise. The cap meant you were fighting over pennies while the real debt went unrecovered.
So I stopped. My tenants were surprised. I explained it simply: if you leave arrears or cause damage, I won’t be arguing over a capped deposit pot through a scheme designed to find against me. I’ll pursue you through the courts for every penny owed. Arrears, damages, costs. All of it. And you’ll leave with a CCJ that follows you for six years, affecting your ability to rent elsewhere, get a mortgage, or access any meaningful credit.
When tenancies ended I reminded them of that. Not as a threat. As information. Return the property in the condition we documented at the start, and we part well. Simple.
In nineteen years, I never had a single end of tenancy arrear or damage claim. Not one.
Good tenants never worried about it. The ones who bristled at the conversation told me something useful before they’d signed anything.
Chris Mason suggests nobody has a complete picture of the cash position behind insured scheme liabilities. I’d gently push back on that. I wrote the software. CFP had client accounting accurate to a fraction of a penny. The capability for perfect audit has existed for a long time. The question has always been whether operators choose to use it properly.
But that argument is almost beside the point. The whole deposit architecture, insured or custodial, audited or opaque, assumes the landlord is the risk. The courts don’t. They look at evidence.
The government is fixing the wrong thing. The problem was never which pocket the money sat in.
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