Zero deposit scheme: Your questions answered
Are you a tenant looking for an easy and cheap way to secure a rental? Or perhaps you’re a landlord pondering the best way to safeguard your property and income if your tenant causes problems. Either way, we’ll answer your most pressing questions regarding the zero deposit scheme so that you can move forward with confidence.
Zero deposit scheme: Your questions answered
Do renters have to pay a deposit?
The simple answer is yes, but the amount you’re expected to pay has changed. Since recent alterations in the law affected the fees landlords and estate agents can charge tenants, zero deposit schemes have become a popular alternative. Why? Because although tenants still have to pay a deposit to secure their new home, it has been capped at five weeks’ rent. Zero deposit schemes, in contrast, guarantee landlords the equivalent of six to twelve weeks’ rent.
What is a zero deposit scheme?
A zero deposit scheme is a way of renting a new home without paying a hefty upfront deposit (currently capped at five weeks’ rent). Instead, you’ll be asked to pay a non-refundable fee based on a week’s rent only. If you intend to share the property with other tenants, you can split this fee between you. This is a form of insurance policy where the tenant remains liable to pay monies to the landlord if they claim damages or unpaid rent.
How do I qualify for a zero deposit?
As long as you or your guarantor passes the usual referencing checks, any tenant is eligible to rent homes covered by the scheme. This may be good news for those on lower incomes who can’t afford a large upfront deposit. However, you’ll need to rent through an estate agent registered with the scheme through a third-party service such as Zero Deposit™️. This may limit your options in terms of properties. It’s also worth noting that if you’re lodging with the landlord or renting as a company, you probably won’t be eligible.
A zero deposit scheme may help those on a lower income afford essentials for their new home.
Do you get a zero deposit back?
No, you won’t get any money back, even if you’ve left the property in perfect condition. The traditional method of paying a deposit involves the landlord keeping your money safe in a protection scheme. Your deposit is returned when the tenancy ends if you don’t owe the landlord anything. This is not the case with zero deposit schemes. While you’ll save money upfront, you won’t have the benefit of using a reimbursed deposit on your next rental.
Is a zero deposit scheme safe?
Both tenants and landlords need to know whether zero deposit schemes are a risk. In one sense, they’re a safe bet for tenants because you know in advance you’ll get nothing back when the tenancy ends.
Likewise, landlords don’t have to worry about protecting the deposit, yet the tenant remains liable for any misuse of their property. Which begs the question: what happens if the insurance company pursues the tenant for the money they guaranteed the landlord? This can be stressful for both parties, but the tenant will only pay for financial loss and damage liabilities as set out in the original tenancy agreement. This is capped at the equivalent of six to twelve weeks’ rent, depending on the zero deposit service used.
If either party disputes the claim, an impartial disputes service such as TDS will step in to review the case. If the judgement falls in favour of the landlord and the tenant doesn’t pay up, they can expect a visit from a debt collection agency. Some schemes may also charge the tenant for requesting their case to be reviewed.
Is a no deposit scheme better for landlords?
Now that landlords and estate agents can only request a deposit based on five weeks’ rent, an upfront deposit offers less protection than it once did. Zero deposit schemes cover the landlord for up to 12 weeks’ worth of rent, helping you foot the bill if anything goes wrong. You won’t have to register the deposit or worry about returning it when your property becomes vacant again either.
Landlords don’t pay anything for using the scheme, and a dispute service will settle any disagreements if they arise. The deposit scheme should pay you directly if you win, so you won’t have to wait for your money.
Another benefit is that the scheme widens the pool of potential tenants, which should help landlords fill up their properties faster. Will this attract less desirable tenants? Not necessarily. They will still have to pass muster in terms of affordability criteria and references, and many tenants choose the scheme just because it’s simpler.
Are zero deposit schemes fair to tenants?
Although there can be downsides to zero deposit schemes for tenants, they act as a kind of insurance policy. Tenants pay up front and landlords can make claims against the policy at the end of the tenancy. Rather than facing disputes relating to the return of a deposit upon the end of a tenancy, the tenant knows they have paid their insurance up front, and it’s up to the landlord to claim against it.
Tenants should carefully consider the pros and cons of a zero deposit scheme before signing a tenancy agreement.
Is a zero deposit scheme worth it for tenants?
There are more cons associated with zero deposit schemes for tenants than there are for landlords. But first, let’s examine the upsides.
Pros
In theory, you should be able to use an upfront deposit for your next rental once your current tenancy ends. In practice, however, many tenants pay for their next home before moving out of the last one, so their deposit is effectively ‘dead money’. Often, tenants never really get it back unless they stop renting altogether. Using a zero deposit scheme significantly reduces the amount initially paid out, so if you’re unlikely to use your full deposit anyway, a non-refundable zero deposit seems like a win-win.
If you have a low income or need to move quickly, a zero deposit scheme offers a less stressful method of securing a tenancy. You’ll still need to pass all the usual reference checks, though. Once you move in, you’ll also have a bigger budget for new furniture or setup costs.
Cons
While a zero deposit seems great on paper, there are some downsides. For a start, you’ll still have to pay one weeks’ rent plus a set-up fee, which you’ll never get back. Long-term tenants will also have to pay a yearly admin fee to stay in the scheme, which varies between providers and could be subject to increases.
When you move on, you’ll still have to budget for any costs the landlord may claim against you. Because a zero deposit scheme is a form of insurance, the landlord will be paid directly by the scheme provider. They will then seek to recoup their costs from you as per the terms of your agreement. This could be scary if you don’t have the money – a problem avoided by upfront deposits.
Depending on the provider, you may also have to pay a fee to have your case arbitrated. With upfront deposits, the money is always yours. The landlord must provide the proof to claim against you. The onus is reversed for zero deposits, which seems unfair if the landlord claims for everyday wear and tear.
Generation Rent is just one group arguing that tenants may end up paying more overall for less protection. Vulnerable tenants may also feel pressured into using zero deposit schemes as more agencies sign up on a commission basis. This could leave them in debt or with a worse credit rating if something goes wrong.