The boss of the Property Franchise Group – whose brands include Martin & Co and EweMove – says he does not think there will be a market for tenancy deposit replacement products once the tenancy fees ban comes in.
The replacement products typically give tenants the option of paying the equivalent of one week’s rent, with the money being non-refundable. Deposits which are conventionally protected mean the tenant needs more money up-front but in most cases are fully or partly refunded.
The amount that tenants will have to put down as deposits is due to be capped to four weeks’ rent in legislation likely to include the fees ban, likely to come into force next year.
Ian Wilson told EYE that he does not think tenants will go with the replacement option once their costs go down.
He said: “I’ve been looking at the economics of these products, as we finesse our approach to mitigating the tenant fee ban.
“Research carried out by our group shows offices are currently charging £320 plus VAT as the average tenant-side tenancy set up fee; an average rent £775 per month; and an average deposit fluctuating from a low of 4.8 weeks rent equivalent up to 7.2 weeks.
“If we take a mid-point of six-weeks rent equivalent, then the cost to move into an average property is rent of £775, deposit of £1,073 and fees of £384 (including VAT).
“That comes to a total of £2,232.
“After the tenant fee ban comes into effect, and assuming that deposits are capped at the equivalent of four weeks’ rent, the cost falls to £1,490, a saving of £742 or a discount (rather neatly) of one-third in tenant costs.
“Our conclusion is that deposit replacement warranties and insurances which claim to help make moving into properties more affordable will be as popular as Christmas trees in January.
“Or are we missing something?”
The tenancy deposit replacement product likely to have the most clout has yet to launch. Zero Deposit, which has the backing of Zoopla and is run by Jon Notley, is due to go live later this year.
“Are we missing something?”
Answer is yes.
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This product prays on the vulnerable. It’s like the old gas and electricity pre payment meters it ends up costing those who can least afford it more.
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Based on our research (still more to do!) the missing piece here is the one week fee does not usually then cover the tenants dilapidations at the end of the tenancy as an insurance, it means the tenant then owes whatever those dilapidation costs are to whoever provided the scheme. The systems also bypass the protections of the various deposit scheme arbitration/adjudication processes.
These no deposit packages will appeal to those with zero financial flexibility who may then believe they have purchased insurance cover, which would not be correct. This may then have. The effect that they may be less motivated to worry about the condition of the property at the end of the tenancy.
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Mathew,
I can help you there. On average 1/3rd of tenancies result in a deduction and the average deduction is around £200. So if you a tenant facing the choice between paying a refundable deposit of (in simple terms) £800 or a (non-refundable) insurance premium of £200 you might think “there is a one in three chance of a claim, the premium looks like good value”. But of course, if your landlord does make a claim at the end of your tenancy then you still owe his insurers the £200 loss. As I say, I’m sure Im missing something, but this looks like the next insurance mis-selling story in the making. We are warning our franchisees to avoid these schemes.
Ian
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The Government has completely ignored Fully-Furnished rental properties with its proposal. Only 4 weeks of rent COULD mean that a Landlord has the hassle of going to Small Claims Court IN ADDITION to deducting 100% of the deposit.
Currretly, my good quality, comfortable sofa – and brand new, good quality mattress, 5 years ago, are no longer fit to reuse. Along with all the other replacements necessary, my tenant’s Deposit of 1 month’s rent won’t replace these, wear & tear taken into account! A lesson learnt for me – the relevant parts damaged weren’t visible on property inspections.
It’ll certainly mean I shall move to PART-furnished in the future. This is MORE outlay for tenant at the beginning for the large items of furniture contents, so they won’t now be able to move in without having to spend a penny!! Swings and roundabouts for tenant in my case: Now: Move in; nothing to spend + 6 wks. deposit v Initial outlay for furniture + 4 wks. deposit.
Noting Rosaline Renshaw’s comment above re: Insurance/warranty products, I’ve read nothing to suggest the Government will seek to protect Landlords in any way! Another kick in the teeth!
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People in this country don’t know they’re born.. If you live in a property in most countries in Europe you will be expected to fully repaint your property upon your departure, leaving it absolutely immaculate – People in this country seem to forget the fact they are living in someone elses home – far too many lefties out there that can’t stand that a landlord has worked hard to buy a second home then take advantage.
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I try and stress to my Tenants that I don’t want to withhold money from the deposit, so if they get the garden done, make sure all the paintwork is the same colour as well they moved in and cover up any holes in the wall before painting then they should be safe. Oh, and if they have had pets the do what you signed to do and get the carpets cleaned! Otherwise I have to get 2 quotes for the work to give to the Landlord, arrange the contractors to do the work and faff about with negotiating deductions! Basically I want to give them the money back, but I can’t if they don’t help!
I had one Tenant who returned a property with paint that was a slightly different shade and patchy, paint splashes on the floor and paint on the light cord. I pointed out to the LL that they had however fully carpeted 6 months previously at their own expense, so deducted money for a few paint splashes when the new tenant moved in 2 days after they left was a tad unfair… They got the whole deposit back.
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“as popular as Christmas trees in January” about the same as a martin and co franchise then!
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While letting agents and many landlords realise what the Governement do not, is that the proposed ban on deposits/fees or whatever finally comes out of the washing machine will hit the tenants most – a sorry result for leglislation that was/is introduced to protect and help tenants. It shows once more how out of contact the powers that be in Government are with the real world.
If agents and landlords made it a stipulation of the tenancy agreement that an insurance backed scheme was madatory for a tenant to enter into to cover the tenant from damages that may occur would this be classed as an unfair contract?
I knew a landlord who never took a deposit. Instead he worked out what a deposit would be, divided it by 6 ( months) and then added that to the rent. Simple and took any (very occasional ) hits on the chin
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Hi Ian and yes, I think you may be missing something!
From a tenants perspective, is this not a no-brainer? Why would a tenant NOT want to reduce his move-in costs even further? Which agent would a tenant prefer to use, all else being equal;
Agent A – 1m advance, 5/6 week deposit; or
Agent B – 1m advance, couple of hundred quid on the policy.
(Savings, in my neck of the woods, could be well over £1500+)
Do these schemes provide a benefit to landlords? I fear not.
Will they promote a culture of tenants who don’t care about the condition AS much as those who have invested their 5/6 week deposit? Maybe.
But will tenants like the idea? Absolutely.
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There are still big question to be asked over these products- just some of these being:
The product introduces a COST but reduces outlay- do Tenants fully understand this?
The product does not limit tenant liability and they remain responsible for the full 6 week accountability (with some schemes claiming this will still be the case after the regs change)- do Tenants fully understand this?
If the Tenants have spent this money (the very premise of many schemes- campaigning to have this money ‘in the economy’)- what happens if they cant come up with the additional funds they are liable for?
Whilst many have advised the cost will reduce each year for non-claims (akin to NCD on car insurance)- most operate on a repeat fee basis requiring an annual fee for another year’s cover- are Tenants aware of this?
At the moment, if a tenant enters rent arrears, you can (with their consent of course) draw on funds held as a deposit- how would this work under these products?
Whilst tenants may accept certain liabilities with their cash- doesn’t this incentivise tenants to dispute any claims in an effort to reduce or postpone outlay?
How would claims & payout timeframes compare to a disputed deposit claims with each scheme?
As this would be a cost- what happens if the Fees Ban makes this charge to Tenants illegal (something Reposit were transparently concerned about when questioned on this point at PropTech Den last week at google campus)?
Also- figures are used in interesting ways by schemes- they tend to use London deposit values when setting out existing ‘outlay’ but often quote regional rent levels for the cost of the product. I would estimate rents in London to average around £400 pw- so yes, that a £2400 typical deposit- but a product cost of around £400- if a tenant stays 3 years and gets even a 25% discount each year that would still be a cost over 3 years of around £925. With the average tenancy deposit deduction under £200 where is the genuine value to Tenants (even at just £400)?
The system we have works- it just needs greater transparency and digitisation and that is well on its way.
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