No-deposit rentals are growing in popularity and may be shaping the way we approach property rentals.
Zero deposit is a hefty alternative to the standard security deposit, but it mostly works the same way. Zero deposit is a guarantee for the landlord who usually only pays the rent one week before the lease starts.
If the tenant is liable for loss or damage to the property thereafter, a regulated body, such as the Rental Deposit Scheme, reviews the case accordingly. This covers Landlords for up to 12 weeks’ rent rather than the industry standard of six.
This provides adequate security for tenants and landlords, and also makes renting a investment property much more accessible to most tenants, with reduced deposits to be prepared for.
It will also appear to help the economy. The Department for Communities and Local Government highlighted that the total value of cash tied up in deposits stood at a staggering £4.1 billion at the start of 2017/18, with this figure increasing. This is a very large amount that can be reinvested to boost the economy.
Zero Deposit CEO, Jon Notley, said “We knew from our research that Zero Deposit would be popular, but it’s great to see all kinds of cities and towns embracing this product, from rural towns like Ripley to coastal towns, suburbs, and megacities.” Zero Deposit now has over 850 offices using their services in major cities including London, Manchester and Leeds.
This is especially relevant to the Tenant Fee Bill which is currently being reviewed by the Government, with a major impact on the elimination of tenant fees. Other major amendments include potentially reducing the security deposit from six to five weeks, and other amendments regarding late payment and withholding of the security deposit. It may make sense to choose a no-deposit scheme.
However, there is a case for caution. Some are of the view that if the tenant is unable to pay the security deposit, it is less likely to instill confidence in the landlord that the tenant will pay the rent reliably on a monthly basis.
The Deposit Guarantee Service (DPS) added that cash deposits still provide the greatest security for both parties. A DPS spokesperson said “we do not believe that alternative schemes currently on the market will help reduce financial pressure on tenants or offer landlords greater security. While these schemes may appear attractive to tenants from an up-front cost perspective, tenants may find that they actually incur higher costs at the end of the lease term.”
Some even claim that deposit-free rentals are used by agents to compensate for the lack of renter fees that were waived this year.
With very opposing views on the matter, it is yet to be seen whether no-deposit rentals will become a popular choice in the rental industry. This is certainly an attractive option in the short term for renters, to find a rental property with less initial financial outlay.
