The head of the parent firm of mydeposits is warning tenants and landlords tempted to enter into new ‘no-deposit’ schemes to approach the idea “with their eyes wide open.”
Eddie Hooker, chief executive of Hamilton Fraser - owner of mydeposits - says the cheap option of a no-deposit scheme has obvious appeal to landlords and tenants alike. However, he warns: “Despite the initial attraction, I have been unable to find clear answers to some pertinent questions. Landlords and tenants entering into such contracts should do so with their eyes wide open.”
His comments come after the marketplace for no-deposit insurance schemes appears to have become suddenly more crowded with Dlighted, Reposit and InsureStreet joined in recent weeks by FlatFair (which Letting Agent Today reported on yesterday - here.)
Now Hooker’s mydeposits service has issued a 14-page document outlining the history of deposits and his critique of the arguments on which no-deposit alternatives are based.
Tenancy Deposit Protection was introduced as a legal requirement in 2007 following government statistics which suggested that 20 per cent of deposits were being unfairly withheld from tenants. Now, a decade later, over four million individual deposits are protected by tenancy deposit protection schemes and dispute levels have fallen to less than two per cent of all ending tenancies.
But Hooker accuses the no-deposit players of using the two per cent dispute levels as proof that they can keep their claims and premiums low. “But they are misusing the statistics” Hooker accuses.
“In fact, more than 40 per cent of deposits are returned to the tenant with an agreed deduction. That means at least 40 per cent of landlords will have to make a claim on their insurance to cover costs. Processing claims costs money and claim costs get added to the overall premium” he claims.
“Like most insurance products, the no deposit options reserve the right to subrogate their losses from the party responsible, so does that mean the tenant will be pursued for a claim that they may or may not be responsible for? Will tenants start to receive red letters, black lists and court judgements for missing payments?” Hooker asks.
The mydeposits review also claimstenancy deposit protection has boosted transparency in the private rental sector.
“The Prescribed Information requirements and formal dispute resolution service are set in stone by legislation and are monitored by government set timescales. In complex deposit disputes which require an understanding of the housing law and consumer and agency law, would landlords and tenants prefer an impartial adjudicator employed by a deposit scheme reviewing their case, or an insurance claims handling process?” the review asks.
“Disputes raised through deposit protection schemes are free and the process must be fair for both parties. The no-deposit insurance products remove these safeguards leaving landlords and tenants to rely on the insurer’s terms and conditions” it believes.
Hooker’s document then turns to the possibly that, in the light of the Queen’s Speech announcement of a possible cap on deposits to the equivalent of one month’s rent.
“Following this news, I question whether the no-deposit products will be as interesting to tenants as they may have been. These products command a premium the equivalent to one weeks’ rent. This will now equate to 20 to 25 per cent of a deposit and is non-refundable, whilst also leaving a tenant liable for reimbursing the insurer for any claims they pay out. I struggle to see how this is a viable option for the hardest pressed tenants and is not just another fee they will have to pay” Hooker suggests.
The report suggests that no-deposit schemes are not inherently wrong but claims the current offers fall short of offering the protection that tenancy deposit protection schemes were created to administer in the first place.
You can see the whole mydeposits document here.
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Boo hoo...please don't take away our business by thinking for yourselves and solving your own problems. That's all I'm hearing here.
I haven't taken a deposit since 2007. Everyone must have a homeowner guarantor. I'm in Court every month of the year, but have the process down to a fine art and not one person has got off owing me money.
One month's rent cap for deposit will breed inventive solutions.
Interesting Luke.
If you don't take a deposit, but presumably get a court judgement, how much time does it take you in pursuing any debts ? I've always found it such a longwinded process.
In addition, do you charge for the amount of time you spend going to court ? It usually takes us at least 3 hours in total in Crawley, by the time you add journey times etc....and the inevitable delays once you get to court.
In court every month? Process down or not that does not sound like a resounding endorsement of no deposits to me. Who covers the court fees?
The market is evolving and alternatives are great. My 'twitter spat' with Reposit is no secret however, since then, my position has softened for sure. That said, I still have a few major concerns here:
1. Do Tenants fully understand that they pay a non-refundable FEE for the product which (it is my understanding) will be more than the average deduction made from 'non-disputed' deductions?
2. Do Tenants understand that, despite paying this fee, that the products either place them as financially accountable for the first 6 weeks rent (value) of any claim OR will then mean that a future product will be significantly higher having lost their 'no claims' status?
3. If a Tenant is (or thinks they are) covered for X damage having paid Y- will they treat the property with less care as it isn't 'their' money on the line?
4. How expedient will the claims process be and how fair will the payouts be to Landlords?
5. Whether they like it or not, these are all insurance products and, as such, should surely fall under all relevant FCA regulations. Whilst Dlighted & Insure Street acknowledge this and have FCA complaint statements on their site- Reposit states nothing of the sort & FlatFair claims it is not insurance.
6. In what is a crowded marketplace for a test product the question also remains that, when one of these fail (and make no mistake, at least one of them will) what protections will remain in place- especially for the comanies not already FCA compliant?
As both a letting agent of 15 years and a ondon Tenant of 20 years I still believe the (current) regulated Deposit system to be the fairest and most comprehensive process in place for all concerned. I must, however, also admit some 'self interest' in this statement as I am shortly about to launch The Depositary for letting agents in partnership with TDS.
I'd be really keen to hear other people's thoughts (especially poeople from the products listed and from large scale lettings agencies) on the key points I've raised.
1. Do Tenants fully understand that they pay a non-refundable FEE for the product which (it is my understanding) will be more than the average deduction made from 'non-disputed' deductions?
Any fee paid must be fully transparent under FCA regulation under our scheme we make it clear during the process and within our terms and conditions.
2. Do Tenants understand that, despite paying this fee, that the products either place them as financially accountable for the first 6 weeks rent (value) of any claim OR will then mean that a future product will be significantly higher having lost their 'no claims' status?
This is explained and documented not only by the agents/landlords but also by ourselves at the start of our process.
3. If a Tenant is (or thinks they are) covered for X damage having paid Y- will they treat the property with less care as it isn't 'their' money on the line?
The documentation and statements make it clear to tenants of their obligations under the AST and a claim can be processed by agent/landlord to recover any monies from the insurers who in turn recover claims under subrogation.
4. How expedient will the claims process be and how fair will the payouts be to Landlords?
There is a Service Leval Agreement in place to process claims which are evidential based all governed under FCA regulation.
5. Whether they like it or not, these are all insurance products and, as such, should surely fall under all relevant FCA regulations. Whilst Dlighted & Insure Street acknowledge this and have FCA complaint statements on their site- Reposit states nothing of the sort & FlatFair claims it is not insurance.
We are FCA Compliant.
6. In what is a crowded marketplace for a test product the question also remains that, when one of these fail (and make no mistake, at least one of them will) what protections will remain in place- especially for the companies not already FCA compliant?
Does not apply as Dlighted are FCA compliant.
Hi Kristjan happy to discuss our product and service, drop me a line at www.dlighted.co.uk
Thanks Ajay but, for the benefit of any other agents reading this, can you address any of the points on here?
Monthly Court attendances are across 150+ own properties and 350+ managed in one of the poorest towns in the country. My office is next door to the Court.
Wouldn't cash deposits reduce that though and cover most instances? Or, with that regularity, wouldn't it be better to issue rent & legal expense warranties against all tenancies?
Cash deposits are finite and realistically limited in terms of affordability, locally, to around £500, which doesn't make much of a dent when running into a couple of thousand in damages/missing rent. All fees/out-of-pocket expenses are added to the bill. It's usually parents/grandparents that end up paying -and I do feel sorry for them- but at least it's not me.
The bonus of having family members with their own house on the line is that they (more often than not usually) step in early and help prevent problems getting worse when a tenant does start to go off the rails.
It has become a secondary arm to my business -tenancy 'fixing', if you like- where I guide others through the Court process. It works for me anyway.
What I am reading here is a lot of good points but the shear number of them must mean that there is a lot of work involved.
Will somebody (A Judge?) tell the world that tenants will be a lot better off without this complexity and that total cocoon like safety comes at an upfront, massive cost for what is a small risk for the tenant and which can be totally avoided by looking after the rented property.
My experience and certainly others writing here is that bad tenants are the authors of their own fate.
For good tenants their fate will usually be no problems at all and likely a lower rent as well if a long tenancy is involved.
Which ever way this nonsense goes all tenants will have to pay out and this will be totally unfair to good tenants and good landlords.
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