England: Deposit-free renting sounds good – or could tenants lose out?

Deposits can be the bane of tenants’ lives. Not only do renters have to fork out hundreds of pounds in letting agent fees, but they usually have to stump up the equivalent of a month’s or six weeks’ rent as a deposit, too. However, several new ventures reckon they have found a way to rent properties without having to put down a deposit.

According to the Deposit Protection Service, the average deposit in England and Wales stands at £967, though London renters typically have to put down around £1,750. In total, an estimated £3.6bn is held by deposit protection schemes across the UK.

The most galling thing for many tenants is that when they move, they inevitably have to raise a deposit for their new property before they get the previous one back. According to government rules, deposits should be returned within 10 days of the end of a tenancy, but disputes mean it often takes far longer.

But perhaps it doesn’t have to be like this. Schemes are emerging that claim to offer deposit-free renting. So how do they work and what’s the catch?

In most cases, instead of the tenant putting down the equivalent of several weeks’ rent, an insurance policy covers this instead. It helps tenants with cash flow while landlords are still covered for the full deposit. However, tenants still have to cough up for damage or unpaid rent at the end of the tenancy. Insurers use a little-known clause called “subrogation” which allows them to pursue a third party (the tenant) to recover any claim.

Ajay Jagota is a letting agent based in the north-east of England who reckons the traditional deposit system is fundamentally inadequate. “From a landlord’s perspective, it limits potential tenants to those who have thousands of pounds to hand, or risks putting their customers in a tight financial spot from the first day of your contract. It makes no sense,” he says.

Jagota is the founder of deposit replacement insurance scheme Dlighted. The policy, issued to the landlord or letting agent, indemnifies the risk of tenant damage or unpaid rent up to £7,500 a month. It costs £129 a year for rents up to £2,500 a month on the assumption the tenant passes referencing checks. Crucially, it’s paid for by the letting agent or landlord, not the renter. At the end of a tenancy, disputes are initially resolved directly with the tenant. If an agreement can’t be reached, the landlord or agent can make a claim on the insurance, with the tenant liable for the cost of a successful claim.


Published by: The Guardian (10 June 2017)
Written by: Emma Lunn

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