A landlord’s guide to zero deposit renting

Usually tenants will need to provide a deposit upfront when they sign their tenancy agreement, which can be up to five weeks’ rent. And with the average deposit in the UK costing tenants £1,108, this can make moving into a new rental property a huge financial challenge.

Over the past few years we’ve seen a rise in schemes that offer a way to try and ease that burden with deposit free renting.

What is deposit free renting?

A zero deposit scheme, or deposit free renting, is an alternative way for tenants to rent a property when they don’t have the ability to pay a deposit upfront. It’s essentially an insurance policy covering the equivalent of six week’s rent, and the tenant will be responsible for paying for any damage or unpaid rent at the end of the tenancy if there’s a claim against them.

Why might landlords use a zero deposit scheme?

There are many different providers of the deposit guarantee out there, but some of the benefits for landlords include:

• speeding up the rental process to avoid long gaps between tenancies (and lost earnings)
• making your property accessible to more people
• free for landlords to use (letting agents are paid a commission)

Is the zero deposit scheme good for landlords and tenants?

While it may seem a good way to speed up the letting process, these schemes have received criticism suggesting they could be misleading for tenants.

The BBC reported that many tenants are confused by hidden costs involved with deposit free renting. This is because the scheme usually involves a smaller, non-refundable fee that tenants will never get back.

Depending on the provider, this could be the equivalent of a week’s rent upfront, higher monthly rent payments, or annual ‘admin fees’.

Plus, if there’s damage or unpaid rent at the end of the tenancy then the tenant will need to pay for it out of their own pocket – and if that’s not possible then it can affect the tenant’s credit history.

Tenants can dispute a claim made against the zero deposit policy, but, unlike the tenancy deposit protection schemes, there’s no free resolution service.

Understanding the facts

As an alternative to tenancy deposits, deposit free renting gives landlords peace of mind that their property is protected while tenants won’t have to save up as much to be able to move.

That said, it’s important that all parties understand what’s involved with a zero deposit policy before entering into an agreement. If you use a letting agent for example, make sure they present tenants with all the facts as confusion around future costs involved could affect your relationship with your tenants.

Rental reforms on the horizon

It’s worth noting that widespread rental reforms are expected, which may eventually include a new ‘lifetime deposit’.

This would give renters the ability to carry their deposit with them whenever they move into a new rental property, although it’s not clear how this would work in practice. Keep an eye on the Knowledge centre and we’ll share updates on this story as soon as anything new is announced.

More useful guides for landlords

• Assured shorthold tenancy agreement template – free download
• How to do a landlord tax return
• How to work out rental yield and free rental yield calculator
• What does landlord insurance cover?

What do you think about zero deposit renting? Let us know in the comments.