The alternatives to a traditional deposit
Some landlords choose not to take a deposit or use deposit alternatives. Here’s a look at the pros, cons and risks.
Some landlords choose not to take a deposit or use deposit alternatives. Here’s a look at the pros, cons and risks
While traditional deposits remain the norm, some landlords choose to forgo them entirely or opt for deposit alternatives instead. These approaches can offer certain benefits, but be aware they also come with trade-offs.
In this section, we explore the pros, cons, and potential risks of going deposit-free or using an alternative ‘replacement’ scheme, to help you decide what’s right for you and your rental property.
1. Taking no deposit at all
This can feel like a way to speed up the letting process. It may reduce the admin and appeal to tenants without savings, which then allows you to let the property more quickly and appeal to a wider range of tenants. In addition, there is no risk of your tenant taking you to court or of not being able to evict them using a Section 21 notice due to poor deposit administration. But the risks include:
no financial cushion for damage, cleaning or unpaid rent/ bills
no access to free resolution
potential for increased financial losses if the tenancy ends badly
This may suit certain landlords or properties, but you may be trading speed for security.
2. Using a deposit replacement scheme
Deposit alternatives include insurance-based or fee-based schemes that aim to offer protection without requiring an upfront lump sum from the tenant. While they can offer flexibility and more protection than simply not taking a deposit at all, not all schemes are created equal.
Things to consider:
Is the scheme regulated and transparent about costs?
What level of cover does it offer?
Will it allow you to make a claim easily?
What administration is required?
If you’re using one of these schemes, do your due diligence, always carry out robust referencing checks, and make sure your tenants understand what they’re signing up to.
Despite the rise of deposit replacement schemes and the extra admin involved, most landlords continue to take a traditional deposit. As of April 2024, over 4.6 million deposits were protected in England and Wales alone.
Traditional deposit v alternative schemes – the facts:
Total Property’s 2024 survey revealed that 96.4% of tenants use a traditional deposit, with only 2.4% opting for a deposit alternative. And this is despite 30% of tenants reporting that raising the money for a deposit is one of the biggest challenges they face today. This suggests that there is a lack of awareness about the options, concern about potential hidden costs, or a perception that they might be less secure than traditional deposits, and the fact that not all landlords readily offer them. After more than 17 years in operation, the tenancy deposit system remains a reliable way to safeguard both a landlord’s finances and their property, with only 15.6% of landlords and agents reporting that they have ever used a deposit replacement.
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