A brief explanation of alternatives to the traditional deposit (bond) collection and administration for private rental contracts.

Alternate Methods of Collecting Deposits

In addition to the traditional method of collecting and storing deposits, there are now schemes which allow those who do not have access to large amounts of money a chance to secure a rental contract. A brief explanation of those schemes, as well of the traditional method is below.


Traditional Method

The usual way of calculating a deposit is one month’s rent plus £100. For example, an £850 per calendar month property would have a deposit, or bond, of £950. If your deposit was paid to a landlord after 6 April 2012, it must be registered with a government backed tenancy deposit scheme. At the end of your tenancy, the deposit will be paid back to you, minus any deductions made by the landlord considering the condition of the property. You are able to dispute this deduction with the scheme your deposit was registered with.

New Methods

Deposit Passporting

Under this scheme the tenant sets up their own account with a deposit protection scheme and pays the required deposit into the account. The money is then frozen for the duration of the tenancy. When the tenant wishes to move and applies for a new tenancy, they can apply for part of this money to be directly transferred into a new deposit, meaning that they don’t have to find the cash for a new deposit before the old one is released.

When the tenant moves into the new property, the rest of the old deposit is returned to them, minus any deductions made by the old landlord.

Zero Deposit Scheme

This scheme requires a smaller up-front cost to start a tenancy, however, the money is not returned at the end of the tenancy. Zero Deposit charges a fee of one week’s rent as a Guarantee to your landlord, which replaces the need to pay a traditional deposit. This means that for an £850pcm property, you will be paying in the region of £210. If you continue with the tenancy for more than 12 months, you will be charged a yearly renewal of £26. At the end of this tenancy, you will need to pay the landlord for any repairs judged necessary, and any unpaid rent. If you do not pay, then the Zero Deposit scheme will pay the landlord, then seek payment from you. You will not receive your initial payments back, as this is a “Guarantee”, not a true deposit.

The benefit of this scheme is that you can set up a tenancy without needing a lot of cash spare, however, the downside is that you will not be repaid that money at the end of the tenancy.

Insurance Based Tenancy Deposit

Another option is to use Insurance Based schemes. These require tenants to pay a monthly fee instead of a lump sum at the beginning of the tenancy. The amount paid will change depending on the property and tenants’ circumstances. The benefit of this is not needing that large sum to secure a tenancy, but the negatives are that insurance prices can vary widely, and that the money will not be returned to the tenant.

Dedicated Deposit Loan Company

The idea behind this scheme is that a Government backed loan company be created to provide low interest loans to people who cannot afford traditional deposits. Tenants will able to pay the loan back over the course of their tenancy. This will enable tenants to reclaim the money at the end of the tenancy, minus any deductions made by the landlord. The only other outgoing is the interest payable on the loan.

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Lewis Greenaway