Are Deposit Alternatives for Renters Too Good to Be True?
In the UK, tenants are required to give their landlords a deposit before the start of their tenancy. The amount is typically equivalent to five to six weeks’ worth of rent, depending on the annual rental.
As revealed by the Tenancy Deposit Scheme, in England and Wales, the average tenancy deposit is £1,041 while London tenants’ average is slightly higher at £1,750. At a time when a huge segment of the rental population is struggling to make ends meet, these averages can prove to be challenging.
With the economic difficulties resulting from the COVID-19 pandemic, many young and single tenants have had to find other ways to pay off their rent. The situation can be even more challenging for those who need to move to a new rental home. Securing money for their tenancy deposit will be tough as many of them do not have extra cash, and some have not had regular jobs since the pandemic first broke out. The five-week deposit plus the first month’s rent will not make things any easier for them.
It was this scenario that gave rise to the concept of having a deposit alternative that provides tenants more affordable deposit options. At present, there are already several alternatives operating in the UK. These services have helped renters who found themselves forced to live in the same property for months because they cannot leave until the end of their tenancy and their deposit is returned.
The deposit alternatives have also helped renters who have had difficulty finding habitable rental homes because of their limited finances. They no longer need to borrow from family, relatives, or friends just to move into a new home.
How do these deposit alternatives for renters work?
The most attractive characteristic of deposit alternatives is the fact that they ask tenants to pay a significantly more affordable fee, which is typically equivalent to only one week’s worth of rent. The only downside, though, is that tenants may not get back the money as it is usually a one-time non-refundable fee. Additionally, some deposit alternatives may also ask tenants to pay a minimal monthly membership fee.
This is how deposit alternatives work:
- The tenant pays the one-time non-refundable payment to the deposit scheme provider.
- The deposit scheme provider gives assurance to the landlord that tenant-caused damages or unpaid rent of up to around six weeks will be covered. This is called guaranteed security and no actual exchange of money or cash is involved.
- Although the deposit scheme provider is taking the risks for the landlords, the tenants remain responsible for any costs resulting from property damage.
While most deposit alternatives help their tenants resolve deposit disputes, the renters remain responsible for and will have to pay for any damages in the property, as well as settle unpaid rent when their tenancy ends.
Tenants who choose to deal with deposit alternatives prefer the more affordable fixed rate compared to paying deposits they cannot afford and then hoping to get back the money when their tenancy ends. It’s a convenient and practical option.
Deposit alternative schemes are not only intended for cash-light tenants as they are also beneficial for renters who are about to move to their new home but are still waiting to get the deposit refund from their previous landlord.
Are they safe and good?
There are drawbacks to using deposit replacement schemes:
- Deposit alternatives are not government-approved like the traditional tenancy deposit protection schemes. They may not provide the same level of protection that the registered ones offer.
- Although there are schemes that are registered with the FCA or Financial Conduct Authority, the UK’s financial regulatory body, this may not specifically mean that the FCA is endorsing the deposit alternatives as secure and suitable substitutes to traditional deposit protection schemes.
- The biggest disadvantage of the alternatives is its non-refundable clause. Tenants will not be able to get back the money they spent on the scheme, unlike the refundable deposits of traditional deposit schemes. On top of this, tenants are also liable for any damage in the property if the landlord files a claim for it after the tenancy ends.
- Interest rates can be costly.
Deposit alternative schemes may be affordable, but if a tenant can find a way to pay a deposit in cash, it should be their absolute first option. At least you’re guaranteed that your money is safe throughout the tenancy, and you’ll get it back when you move out if you follow all the terms of your tenancy agreement.
And if your landlord does not protect your deposit in a government-approved scheme, you can file a dispute and a tenancy protection compensation claim.
How to file the compensation claim
Filing for a deposit protection compensation claim starts with you finding a team of solicitors who are not only experienced but also experts in helping tenants like you. The Tenancy Deposit Claims team is composed of dedicated solicitors who are authorised and regulated by The Solicitors Regulation Authority. Their no-win-no-fee policy is a guarantee that they want what is best for you.
Don’t get trapped into using deposit alternatives; get in touch with Tenancy Deposit Claims’ expert team and increase your chances of getting back the deposit refund your landlord owes you.