The market for tenants’ deposit replacement schemes is set to become increasingly competitive after Hamptons International was named as one of the first customers of Canopy – which also announced a £1.3m cash injection from insurance company Direct Line.
Rival Zero Deposit, heavily backed by Zoopla, is currently recruiting agents and is expected to launch shortly.
A spokesman for Countrywide, which owns Hamptons, said the Canopy service is currently being tested.
A Countrywide spokesman said: “We are currently trialling the Canopy service. It’s not live at the moment, though, and won’t reach branches and therefore tenants until November.”
Jon Pitt, head of lettings for Hamptons, said: “This is a trial so we really want to understand the appetite from landlords and tenants for this type of product. At this time, we think Canopy’s proposition is aligned to our landlords’ and tenants’ requirements.
“We will review this over the course of the trial. We are always looking at how we can improve our customer journey and review a lot of different services that are new to the market. We haven’t ruled out trialling different companies but at the moment we are focusing on Canopy as the service is ready for the market.”
The Canopy scheme has also attracted property developers and build to rent management companies such as GetLiving and Tipi, and says it is in talks with other agents.
The announcement came as it was also revealed that Canopy, which has been rebranded from its original name InsureStreet, has received £1.3m of financial backing from insurer Direct Line in return for a 15% stake in the new company.
Canopy also has backing from serial entrepreneur Vin Murria, insurance provider Hiscox and credit reference agency Experian.
The startup was launched earlier this year by Tahir Farooqui. Instead of paying an upfront deposit, tenants have the option of making a one-off payment for an insurance policy from Hiscox that covers the landlord for up to £30,000 in the same way a deposit would.
Each renter is given a Rent Passport that looks at personal information such as where they were born, their job, credit report, any sanctions as well as a negative media check, to determine how much they should pay for the insurance.
The cost of an insurance policy is not recoverable, as a cash deposit would be, but it can be reduced to as low as 5% based on good renter behaviour.
Farooqui told EYE that premiums would be 5-15% of a typical cash deposit cost but good behaviour would lead to a lower risk premium.
Agents, renters and landlords will all be able to rate each other on the app.
Farooqui said: “We are excited by this financial investment as it supports the expansion of our business, which aims to improve every aspect of renting for all parties concerned – renters, landlords and estate agents.
“The days of the security deposit are now numbered, and we can now empower renters to become buyers far more quickly because their rent can now count towards their credit history.”
Let me understand this: a Renter pays out 5-15%, say £60-180 on a £1,200 deposit equivalent policy, and gets nothing back after 12m. But if they put down the £1,200 cash it would lose opportunity cost of say 1.5% gross best rate deposit interest, say £18, and get the whole £1,200 back (assuming good behaviour!).
Thus they are being actively encouraged to lose 3.5-13.5% on their savings, £42-162 in a year? And this is supposed to empower Renters and encourage prudent financial management?
I guess someone will then say: Ah yes but, some Renters don’t have the £1,200 cash available, or know a close relative/friend who would lend them it. Right. Like the cost of their last holiday to Marbella for example. Or 6 months of ciggies at 10-a-day. Or 6 months of cocktails each week at the night club.
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Good points Mr Serious as so many tenants often take their spending habits as you suggest more seriously than their housing/roof over my head requirements. As interest rates go up, as they will, the %age loss on their savings will increase.
Fees and deposits are of course very much in the news and the outcome awaited on their future.
One landlord I know of has for a number of years never charged a deposit or referencing fee ( he does not use a letting agency but self manages). What he does is to establish what his market pcm rent should be then add 10% to that rent and advertise as no deposit needed. As he is a very good landlord with well kept and maintained properties his tenants stay 12/24 months or longer so he is literally quids in. More importantly he is very happy and his tenants are very happy because he is a caring landlord who has not charged a deposit. He covers the credit check himself but over the time of the tenancy he is far better off than taking a deposit etc.He is prepared to take the risk but it works for him.
Of course some landlords see their rental properties purely as cash cows and pay little or no attention to the tenant or indeed the maintenance of the property
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As agents and landlords know all too well- when you look at the risk involved in terms of the possible rent void when evicting a non-paying tenant and/or the possible damage an unruly one can cause, asking tenants to part with £1,000 (or more) is not really that much to ask. Whilst references can tell you so much, holding a sizeable amount of Tenant cash is a useful leverage to have should things start to go awry.
What is also concerning is the questions over the genuine value to the tenants that some of these schemes offer- and it is essential that tenants are very clear on what they are and aren’t getting under what is being offered. For instance, I am aware of one scheme where, should a tenant contest a deduction and it ‘fail’ they are charged a fee of £120 + VAT. Some are presented as ‘insurances’ yet the tenant, paying the premium for the product, in many cases gets little if any cover- with full financial liability for any deposit claims (up to 6 weeks) going forwards.
One of the large selling points is the reduced admin placed on agents however the tail-end process of check outs, deductions and the process involved remain (by and large) unchanged. As such, the savings are at the start of the process- but those with good systems in place know this is not the onerous part of deposits.
The other huge question that no one knows the answer to yet (and that is being, surprisingly, seemingly ignored) is- what happens when the framework of the Letting Fee Ban is announced? If, as expected, ALL Tenants costs are banned (referencing, contracts & inventory/check-in/check-out) then surely, as a fixed price ‘service’ this will also fall under the ban and cannot be charged to Tenants. So you then have the question- will Landlords be willing to pay for these products to allow a tenant to rent a property without paying a deposit? I don’t think so.
Of course- I would say this as I am building The Depositary which is focusing heavily on the tail-end system- and modernising the way agents manage and facilitate the admin involved with traditional cash deposits (in the interest of full disclosure). I’m looking forward to debating this with My Deposits, DLighted & Reposit at the Property Investor show at Excel on Friday in much more depth.
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