Zero deposit schemes – our take on this
In this blog on zero deposits, we shall be covering:
- What is a zero deposit scheme?
- The benefits
- The drawbacks
- What we are doing
Recently the Observer wrote a piece on zero deposit schemes which was rather uncomplimentary. The main concerns were that residents were being forced into taking these schemes and did not understand what they were signing up for
Why did a zero deposit schemes come into being?
In 2017 the London market was a tad mad and pre the tenant fee ban (2019), the average deposit being asked for was in the region of £3000. This meant that a resident looking to move from one home to another would have to have around £6000 in deposits. One being held until checkout, and one being held in preparation for check in. This was felt to be unfair as it was reported that most people were borrowing the deposit at high interest rates.
The idea behind a zero deposit scheme was that the resident would take out a bond which would be called upon should there be any dilapidations or unpaid rental at the end of the tenancy.
What are the benefits of a zero deposit scheme?
In 2017, for our area, the highest rentals were achieved with larger properties taken by US forces. Although the US government paid the rental, the deposit was always paid by the incoming resident which sometimes was an issue. Therefore, the use of a zero deposit scheme was logical and helped smooth out the log jam.
What are the draw backs of a zero deposit scheme?
The main challenge for us was residents kept believing the fee they paid was an insurance. Despite a great deal of detailed explanation, verbally, in writing and with them signing to confirm their understanding, many were surprised to the point of indignant that they then needed to meet the full cost of any dilapidations. This is one of the issues raised by The Observer.
However the big issue raised by The Observer is that residents were not given the choice. You can be reassured we offered all residents a choice. We believe many decided to not take the scheme once they understood it was not an insurance.
Where we stand
Initially we felt that this was a useful idea. However, for two reasons we do not offer this option anymore:
- The tenant fee ban in 2019 put a ceiling on the amount of deposit that could be taken – five weeks instead of eight weeks.
- The checkout process was proving more onerous for both of us/ the landlord and the resident tenant with the company we used.
As at today’s date, 4% of our residents have a non-deposit option and since 2020 we are not offering this option purely because at the end of the tenancy, even though the resident signed to say they understood what they were signing up to, where there were issues (to be honest only a few) the residents suddenly read what had been signed and were calling foul – which is not helpful in the negotiation.
If you would like to discuss anything on zero deposit just give us a call on 01480 494939
