We recently partnered with a deposit replacement provider. I interviewed all the available providers and made a decision based on who I felt offered the best protection for our landlords. The whole process was a very positive experience and it got me to thinking; how many landlords know about deposit replacement and what is the appetite for such a services?
A deposit replacement product is an alternative to a traditional cash deposit, which on 1 June 2019 is set to reduce to a maximum of just 5 weeks’ rent. Under this scheme, instead of paying a large sum of money upfront, the tenant pays a membership fee (with our provider, this is 1 week’s rent + VAT, split equally across all tenants in the household) and then covers the cost of any lawful claims made by the landlord upon vacating the property. It’s entirely free to the landlord. The scheme is not an insurance product; the liability is still with the tenant to cover the costs of damage and lawful claims made by the landlord and to pay rent in full and on time.
These schemes have benefits for both the landlord and the tenant. For the tenant, it removes the need to tie up large sums of money in a deposit. This is good for landlords too, as it removes what is a common barrier for many entering the rental market or looking to move home, so it can go some way towards reducing void periods. It makes renting less expensive and more accessible to a greater pool of tenants, which only benefits the industry as a whole.
For us, though, the key benefit that stands out is the far greater protection offered to landlords. As with deposit protection schemes, both landlord and tenant are protected from false claims through independent dispute resolution and the service helps to settle claims quickly and securely. The landlords’ responsibilities remain the same as under a standard scheme. Some of the advantages offered by our deposit replacement partner include enhanced protection of up to 12 weeks’ rent and free recovery for claims over this amount. This is a significant increase on a standard cash security deposit. Our deposit replacement partner is underwritten by an A-rated financial institution, so there are no concerns about safety or their ability to deliver the service.
On evaluating the above benefits and advantages of deposit replacement over cash deposit, we felt it was the right choice to switch. If it’s the right choice for us, it could be the right choice for you too. However, there doesn’t seem to be a great deal of awareness amongst landlords of this hugely beneficial alternative to cash security deposits and we want to spread the word and get your views on how this could improve your experience as a landlord. From our point of view, it’s a ‘win win’ – our rental properties become a more attractive option for tenants, as the largest barrier to renting is removed, improving the financial situation for landlords in what has been a challenging market.
How do you feel about deposit replacement? Could it help you to reduce void periods and increase the protection of your investment? Please get in touch if you’d like to discuss the benefits for your portfolio, or, if you’re already using deposit replacement, we’d love to hear about your experiences.