Renters are struggling to move home because they face weeks of waiting for their deposits to be returned.
A new report from Which? says that the deposit system is broken, and suggests that deposit replacement products or tenants’ passports would be better. However, there is also speculation that insurance-type replacement products could be the next PPI scandal waiting in the wings, with suggestions that tenants are being asked to pay for protection but not getting any cover themselves.
Replacement products typically cost one week’s rent, but are non-refundable, and some schemes charge more during the life of the tenancy. Some schemes are also unregulated.
Passports would mean that a deposit could simply go from one property to the next.
Which? says that tenants have to challenge charges that they feel are unreasonable and that many are unhappy with the current system.
Which? says that a third of renters moving from one property to another in the past two years had to pay a new deposit before receiving their previous one back.
Which? also found that two in five renters used a credit card, overdraft, or borrowed money from family or friends to cover the cost of the move.
Among tenants who had moved out of a rental property in the last two years, one in six who received their deposits back said it took four weeks to arrive.
More than half, 55%, did not get the deposit back in full.
The Which? research found the two most common reasons for a deduction to be cleaning (50%) and damage to property (32%).
Which? said: “Tenants and their letting agents or landlords are clearly not on the same page when it comes to justified deductions: 81% of tenants who faced a deduction for cleaning felt this was unreasonable; 75% of those who faced a deduction for property damage thought the same.
“The landlord or agent must give reasons for any deposit deductions made, but one in ten respondents told us that this didn’t happen, leaving them in the dark and out of pocket.”
Which? said it had heard from “many” tenants who felt their deposit money had been unfairly retained, or whose deposit had not been protected, as is required by law.
Just one third of tenants who raised a dispute said they were satisfied with the deposit scheme
Which? said the Government must review deposit adjudication schemes “to ensure they are working in the best interests of tenants”.
It said: “It should review the current, cash-based deposit system, and consider possible alternatives to avoid tenants having to cover two deposits at once when moving between properties.
“These alternatives include new, insurance-style options or the direct transfer of deposits between properties.”
Which? managing director of home products and services Alex Neill said that the deposit system “is crying out for reform”.
The Tenants Fees Bill, which will ban agents from charging fees to tenants and will also cap both holding and security deposits, is due back in Parliament early next month.
Eddie Hooker, CEO of mydeposits, said: “Since their introduction more than 12 years ago, tenancy deposit protection schemes have consistently delivered a good service for the majority of tenants.
“Whilst I recognise that the systems and processes of deposit protection may need updating to deal with today’s rental market, I do not believe that overhauling the current system in favour of, for example, no deposit insurance alternatives, offers any greater protection for tenants.
“Yes, there is an affordability issue for tenants, particularly those in London having to find on average £2,500, and this is an issue that must be addressed.
“However, purchasing an insurance policy which reimburses a landlord if the tenant cannot or will not pay any losses, simply buys the tenant out of having to pay a deposit and could place tenants is a worse situation some years down the line.
“Ultimately, tenants are still liable for recompense to an insurance company which many tenants simply do not realise.
“The fees/premiums charged over a ten-year renting period, could end up costing the tenant £6,000-£7,000 for nothing.
“What many don’t understand is that deposits are refundable if the tenant abides by the terms of the tenancy agreement. Insurance premiums are not.
“Any change to the current system should recognise and embrace the existing benefits, such as Alternative Dispute Resolution, but be enhanced.
“Options such as deposit loans, custodial-only schemes or deposit passporting could address affordability issues and offer tenants greater control, while continuing to give landlords the confidence to remain in the buy-to-let market.”
The speculation that tenancy deposit replacement products could be the next PPI scandal waiting to happen is summed up here:
Which are just again jumping on the landlord bashing wagon for self gain
the deposit system is not broken and already heavily tenant favoured, even more so DPS.
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Which – please stick to telling us which toaster is best – you know the square root of diddly about lettings…..
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Insurance: “an arrangement by which a company undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium”
If a tenant doesn’t perform their obligations in the belief that the ‘insurer’ will pick up the tab yet that firm pursues the tenant for any losses, as many providers advise they will, then there may well be a case for mis-selling. The CityAM article is very insightful. I like Canopy, but it just seems odd that a tenant can insure against their own wrongdoing. Jon Notley’s Zero seems have considered this.
In my experience, if a tenant leaves a property owing money, it’s very hard for anyone to to collect the loss. Have underwriters really assessed their exposure? what guarantee is there that they will renew any ‘policy’? There is no obligation for them to do so and you could end up with a tenant in situ with no deposit and no cover.
Often the best ‘leverage’ would be a guarantor. I sincerely believe that the whole replacement concept will evolve once the FCA really start to look into the schemes available.
My other big concern is that instead of impartial ‘dispute resolution’ these schemes will be part of a claims process in the event of loss which has a very different emphasis.
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Valid points Eric, for me the cost of some zero deposit schemes are akin to *payday loans*. Romans and Leaders for example offering them to tenants on the basis that they are good for the tenant, when clearly they are not for many.
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Yet another ONE SIDED tenant only so called “report” It is difficult enough for a landlord to prove a loss and recover anything from the deposit and it also TAKES A LONG TIME by slow acting GOVERNMENT NOMINATED companies. Blame the Government, they came up with the scheme. Why should landlords rent to unknowns without any security? After all Which do not sent you their reports upfront and trust you to pay at a later stage. GET A LIFE!
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Really? someone thinks that dealing with an insurance company will be faster?
Leave the property how you found it and there should be no reason you don’t get the deposit back!
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