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Lettings Blogs July 10, 2021

Traditional Deposit Vs Deposit Replacement Scheme Which Is Better?

If this isn’t your first rodeo, either as a tenant or as a landlord, you’ll already know that there are upfront costs when it comes to renting - not least of all the deposit.

The deposit amount (which was capped at 5 weeks’ rent in 20219), covers the landlord in the event of any unpaid rent or damage to the property, and is paid to an agent (or landlord if it’s a private rent) before a tenant moves in.

That deposit money is then protected by a registered scheme such as DPS or MyDeposits for the length of the tenancy.

At the end of the tenancy, providing rent has been paid in full and on time, and   the place has been left in its original condition, that money is returned to the tenant.

Job done.

Except there are a few problems with a traditional deposit - particularly for the tenant.

Having that lump sum to hand in the first place can be a problem.

And let’s say you’re already in a rental property and are moving into another…. It can take up to 10 days after your tenancy ends to get your deposit back - which means you’ll have to save or borrow that deposit money again to put down on your new place, before you get your first deposit back.

‘If only there was another, less expensive way!’ we hear you cry…


Deposit Replacement Schemes

A deposit replacement scheme, or ‘zero deposit guarantee’, is just that.

Before you get too excited, if you’re planning on renting,  ‘zero deposit’ doesn’t mean ‘zero money’ - what it does mean is that tenants have the option of paying a smaller amount, usually a week’s rent, instead of the standard 5 weeks.

This deposit replacement is paid to an independent company, such as Reposit who provide protection to the landlord should there be a breach of tenancy.

This makes the rental market more accessible to those who can afford to rent, but can’t come up with that lump sum for a deposit without having to save or borrow.

If you’re wondering what’s in it for landlords; the deposit replacement scheme offers them 6 weeks of protection as standard, rather than 5 - the same as a traditional deposit used to cover before the 2019 cap, with some schemes, such as Reposit, offering up to 8 weeks’ worth of cover.


What Do I Need To Know About Deposit Replacement Schemes?

  Letting agents and landlords don’t have to offer a deposit protection scheme - but if they do, they still must give tenants the choice to pay a traditional deposit

     When you pay a traditional deposit, and no deductions are made due to damages etc, you get that money back when your tenancy ends. With deposit replacement the initial amount you pay is much less - but it is non-refundable.

     Tenants are still liable for any damages or unpaid rent under their tenancy agreement - ON TOP of the deposit replacement paid at the beginning. This would be pursued by the scheme provider, rather than the landlord

     Some deposit replacement schemes charge a yearly renewal fee or a monthly payment, as well as the initial deposit replacement payment, so it’s important to read all the terms




Traditional Deposit Or Deposit Replacement?

The main advantage for tenants of a deposit replacement scheme comes right at the beginning: not having to come up with a large upfront sum.

Those who are struggling to save for a deposit will feel that this more than makes up for any additional costs that might come later.

A traditional deposit could end up saving a tenant money in the long run though, as any damage or repairs a tenant is liable for is taken directly from that deposit, rather than costing extra on top. 

If you’re a landlord, it really comes down to the length of time you’re protected for - as the deposit is money that potentially will be paid back in full to your tenants anyway, rather than for you.

The deposit replacement scheme means that landlords benefit from being protected for longer.  

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