What Are The True Pros And Cons Of a Zero Deposit Scheme?
21 Jan 2021
Zero Deposit schemes can be very appealing to tenants looking to lower their moving costs by avoiding a security deposit. What are the disadvantages, though?
Are you considering renting an apartment? While it is a much easier alternative to homeownership, there are certain costs of renting that you must be prepared for. One of these is providing your landlord with a security deposit. But what if we told you, you don’t have to pay this deposit? That’s right. Some landlords offer deposit-free renting and let you sign up for a Zero Deposit scheme instead.
There are many advantages and disadvantages to this scheme. Read on to find out what these are and whether you should opt for Zero Deposit schemes over a traditional security deposit.
- What Is A Security Deposit?
- What Is A Zero Deposit Scheme?
- What Are The Advantages of Zero Deposit Schemes?
- What Are the Disadvantages of Zero Deposit Schemes?
- Comparing Flatfair, Reposit and Zero Deposit
- Wrapping It Up
A security deposit (also known as a tenancy deposit) is a sum of money provided to a landlord by the tenant. It is used to pay for any costs and damages incurred by the landlord if the tenant breaches the terms and conditions in their tenancy agreement.
It is submitted in a government-approved deposit protection scheme and returned to the tenant after the tenancy ends.
As per the Tenant Fees Act 2019, the security deposit is capped at 5 to 6 weeks of rent. This depends on the annual rent you pay1.
Click here to learn more about what a security deposit is.
A Zero Deposit scheme is an option offered by landlords that forgoes the need to submit a security deposit. It is an alternative to the traditional security deposit. Under this scheme, renters can provide a non-refundable fee, usually equivalent to one week of rent. This fee acts as a guarantee.
You can use companies such as Zero Deposit, Reposit and Flatfair to sign up for this scheme. The company you use acts as an insurer, guaranteeing payment for damages to the property caused by the tenant. If any damage occurs, the tenant is responsible for reimbursing the landlord for it2.
There are many advantages to renting a property under the Zero Deposit scheme. These include:
Lower Moving Costs
The biggest advantage of these schemes is that it makes renting more affordable. Even if it is capped at 5 or 6 weeks of rent, the tenancy deposit you submit represents a sizeable sum of money. For instance, if your annual rent is £45,000, the maximum security deposit you pay would be £4,327.
Not having to pay this amount immediately lowers the cost of renting and moving to a new property.
Free to Manage Other Expenses
Adding onto the advantage described above, renting under Zero Deposit schemes means your money doesn’t get tied up for a significant period of time. Instead, you can use it to manage other necessary expenditures or direct it toward your savings.
Less Paperwork in Submitting or Recovering the Deposit
There is a significant amount of paperwork involved in submitting a security deposit. You also need to make sure your landlord has submitted your deposit to a government-approved deposit protection scheme.
If they haven’t, you need to take legal actions against them.
There is also a significant amount of paperwork involved in recovering your deposit from your landlord. If there are any deductions involved, you must review them and come to an agreement with the landlord on the amount that needs to be returned to you.
Landlords are required to return your security deposit within 10 days after they have reached an agreement with you. If they fail to do so, you will have to get in touch with your deposit protection scheme and file a claim in a small claims court.
The entire process can be cumbersome for tenants, especially if they plan to move to a different city. On the bright side, your deposit will be held securely by the scheme until any disputes are resolved.
If the above sounds too much of a hassle for you, you can look for a landlord willing to offer deposit-free renting under a Zero Deposit scheme instead.
Zero Deposit schemes have their benefits. However, you also need to be aware of the disadvantages associated with these schemes.
Paying a Non-Refundable Processing Fee
A primary disadvantage of Zero Deposit schemes is that the processing fee you provide at the onset (equivalent to one week of rent) is non-refundable.
In contrast, security deposits are fully refundable, minus any deductions made due to damages suffered by the landlord. Additionally, tenants are not required to submit a fee to the deposit protection scheme responsible for protecting their security deposit until the tenancy ends.
Paying More Money than a Fixed Security Deposit
Zero Deposit schemes have also faced criticism because they often end up costing more than a traditional security deposit. As mentioned earlier, you are charged a non-refundable processing fee at the onset. You may also be charged an annual or monthly renewal fee. In such cases, the scheme can prove costly for tenants.
To understand this better, let us take a look at a scenario stipulated by Generation Rent3. Suppose that a renter signs up for a 12-month tenancy under a Zero Deposit scheme and uses ZeroDeposit.com, FlatFair, Reposit or Romans No Deposit Option for it. They renew their tenancy in the second year and also pay an annual renewal cost to the scheme they signed up for.
In doing so, the tenant will incur the following costs over two years under the Zero Deposit schemes mentioned above4:
- Zero Deposit - £164.46
- Romans No Deposit Option - £864.00
- Flatfair - £164.46
- Reposit - £168.46
Romans No Deposit Option is the most expensive scheme. This is because tenants are required to pay a monthly fee varying from £36 to £48, depending on their monthly rent. This fee can be higher if the tenant has a pet.
Compared to this, a traditional tenancy deposit scheme does not have any additional charges.
May Not Be Available to Everyone
In some cases, Zero Deposit schemes require extensive tenant reference checks. They are only offered to the best of tenants who have not had a dispute with their landlords in the past. Therefore, if you are trying to rent a property under this scheme and have an ongoing dispute with your previous landlord, there is a possibility the scheme will not be offered to you5.
Dealing With Claims by Landlords
Tenants that sign up for Zero Deposit schemes are more vulnerable to claims made by landlords. Some schemes tend to be unregulated, and it can difficult to dispute claims for damages. In comparison, your security deposit is submitted to a government-regulated agency, which offers protection against unfair claims for damages.
Letting agents also receive a commission for recommending these schemes to tenants. Therefore, you need to be careful and make sure your letting agent is acting in your best interests when they recommend a particular scheme to you.
To avoid any repercussions, we recommend checking the dispute resolution process offered by the scheme you sign up for. There should be a transparent process here, overseen by a third party to ensure fair judgement.
Schemes also charge an arbitration fee of £100 for checking unfair claims and deductions. This fee is also charged under a deposit protection scheme.
If a scheme appears unregulated to you, it is best to walk away and opt for a traditional security deposit instead. If you don’t, you could end up losing thousands of pounds in paying for damages claimed by your landlord.
Flatfair, Zero Deposit and Reposit are the most popular Zero Deposit schemes available to Build To Rent tenants. Let’s review the main differences between these three schemes and which is more beneficial for you67.
|Scheme||Processing Fee (Non-refundable)||Renewal Fee||Regulation||Landlord Protection|
|Zero Deposit||1 week of rent||£26 annual admin fee||Regulated; works with The Dispute Service for managing disputes between a landlord and tenant;||6 weeks of rent|
|Flatfair||1 week of rent||No annual renewal fee||Not regulated by a third party for dispute resolution||12 weeks of rent|
|Reposit||1 week of rent||£30 annual renewal fee||Regulated; tenants are required to pay an additional £120 if losing dispute||8 weeks of rent|
Zero Deposit schemes have their advantages and disadvantages. While they lower your moving costs at the onset, you need to make sure you are not incurring more expenses in the long run when utilizing such schemes.
We also recommend signing up for schemes that are properly regulated and can help you counter unfair claims and deductions by the landlord.
Not all private landlords offer these schemes, though. If you want to rent under a Zero Deposit scheme, visit our database to see which Build To Rent development offers this perk. Many BTR landlords are flexible about offering deposit-free renting under Zero Deposit schemes.
They also try to ensure a scheme is regulated to handle possible disputes. Additionally, Build To Rent landlords make sure you don’t have to deal with unfair claims or deductions.
Are you looking for a Build To Rent property to rent that offers a Zero Deposit Scheme? If so, head over to www.buildtorent.io and view listings of Build To Rent developments that provide these schemes to tenants and benefit from deposit-free renting.
- UK Government, Tenant Fees Act↩
- Zero Deposit, Tenant FAQ↩
- Generation Rent, “Deposit-free” products: definitely not free and less protection for renters↩
- Generation Rent, Comparison of cost to tenant of "deposit-free" schemes and traditional deposit protection schemes ↩
- The Sun, New scheme means tenants DON’T have to pay a deposit – but it could push up renting bills↩
- Canopy, How Canopy Deposit Free compares to other providers↩
- Reposit, Goodbye, tenancy deposits↩