Landlords Should Beware of No Deposit Insurance, Warns White Paper

Landlords should beware of no deposit insurance, warns a new white paper from mydeposits, as tenancy deposit schemes celebrate ten years since their introduction across England and Wales.

Tenancy deposit schemes provide landlords with greater protection during the lettings process, should the tenant breach the terms of the tenancy agreement, such as causing damage or not paying the rent, as they allow landlords to make appropriate deductions from the deposit.

It is also a legal requirement for landlords to protect any deposits they take from a tenant in one of the three Government-approved schemes.

However, tenancy deposits have come under fire recently, with the Government announcing plans to cap security deposits at one month’s rent.

Some landlords are now seeking alternative no deposit insurance, which offers a deposit-free solution, in order to protect themselves and their tenants.

But Eddie Hooker, the CEO of Hamilton Fraser, which is the parent company of mydeposits, is not entirely convinced by some of the products on offer.

His firm has compiled a 14-page white paper that reviews how these no deposit insurance products operate versus traditional cash tenancy deposits.

Read the full white paper here: https://www.mydeposits.co.uk/wp-content/uploads/Deposit-or-no-deposit-insurance-What-we-need-to-know-1.pdf

Hooker says: “There are now several no deposit insurance products that offer a solution whereby a tenant can rent a property without having to put down a deposit. Despite the initial attraction, I have been unable to find clear answers to some pertinent questions. Landlords and tenants entering into such contracts should do so with their eyes wide open.”

More than four million individual deposits are now protected by tenancy deposit protection schemes, and dispute levels have dropped to less than 2% of all tenancies.

“The no deposit products use the 2% dispute levels as proof that they can keep their claims and premiums low, but they are misusing the statistics,” Hooker explains. “In fact, more than 40% of deposits are returned to the tenant with an agreed deduction. That means at least 40% of landlords will have to make a claim on their insurance to cover costs.”

He says that he can see the merits of an alternative to deposits, but points out that processing claims costs money and these costs get added to the overall premium.

Hooker concludes: “Like most insurance products, the no deposit options reserve the right to subrogate their losses from the party responsible, so does that mean the tenant will be pursued for a claim that they may or may not be responsible for? Will tenants start to receive red letters, black lists and court judgments for missing payments?”

Let us know what you think of alternative no deposit insurance.