Zero deposit scheme: could renting a house without the hefty up-front payment really save tenants thousands of pounds?

Zero Deposit offers the same level of protection for landlords as a traditional deposit, but saves tenants thousands of pounds.
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Sara Yates22 February 2019

Saving up for the deposit on a rental home is the bane of many a Londoner’s life.

Rental deposits are eye-wateringly expensive in the capital, costing close to £2,000. That’s a month’s take-home pay for anyone lucky enough to be earning the £38,000 average London salary.

For many other renters struggling on low incomes, it’s sadly a multi-month task. It’s also a huge under-utilisation of renters’ money with more than £3 billion currently sitting in deposit protection schemes, earning them zero on their hard-earned savings.

Worse still, after inflation has nibbled away, the lump sums can look a lot less lumpy when they are returned. And when a tenant decides to move on, they will likely need to find another big chunk of cash before the deposit on their last place is returned.

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Now, finally, there is another way. Zero Deposit and other similar schemes will now let you rent a home, deposit free. Sounds great. Surely there’s a catch?

“Anyone who has rented understands the pain of having to find rent and a six-week security deposit,” says Jon Notley, co-founder and chief executive of Zero Deposit. His company aims to help tenants by providing an alternative to the traditional deposit.

Bye-bye rental deposit… hello saving to buy a home

With Zero Deposit, tenants do not pay a deposit. Instead, they pay a non-refundable fee of just one week’s rent to move into their new home.

If tenants are renting as a group, the fee is shared between them. This makes the costs of moving much more affordable. Better still, for an annual administration fee of £26, the Zero Deposit guarantee covers the same property for up to 10 years.

The product works for landlords too. Under the scheme, tenants remain liable for the property and therefore incentivised to keep it in good nick.

This means that at check-out, any unpaid rent or outstanding damage needs to be settled, as it would if a deposit had been placed upfront.

And, just as with cash deposits, disputes are handled by one of the independent, government-backed Deposit Protection Schemes, the Tenancy Deposit Service.

Crucially, the financial position of the tenants at check-out does not affect the landlord’s ability to recoup their cash.

While tenants no longer provide a pot of rainy-day money at the start of their rental, their upfront fee buys the landlord a guarantee, backed by Munich Re, the world’s second-largest reinsurance firm.

The guarantee enables Zero Deposit to pay the landlord the money owed within two days of a decision from the Tenancy Deposit Service, before Zero Deposit then recovers the costs from the tenants directly. This makes the process quick and easy for the landlord.

The guarantee is equivalent to six weeks’ rent. This is one more week’s protection than the Tenant Fees Bill will soon allow to be held as a cash deposit, meaning landlords will be better protected under this scheme than with a traditional deposit.

“The tenant benefits from a big cost saving at the beginning of the tenancy, and the landlord is provided with a fully protected guarantee along with the comfort that if there are any problems, they are protected by the same end-of-tenancy process as with the cash deposit regime,” adds Jon Notley.

Rave reviews

Zero Deposit has met with rave reviews, with 84 per cent of reviewers on Trustpilot marking it as excellent.

Perhaps even more telling is that over 50 per cent of tenants who are offered the choice of Zero Deposit purchase the product, with many adding glowing comments to boot.

One reviewer, Onika from Mitcham, calls Zero Deposit’s scheme “a much-needed relief of some of the financial burden on tenants in an already overpriced rental market”, while Adam from Beckenham comments: “It’s an opportunity for people who are going into their first home and don’t have the funds for a full deposit.”

It’s not only tenants who are applauding the scheme. Zero Deposit’s robust Financial Conduct Authority-regulated product, alongside Jon Notley’s strong credentials as Zoopla’s former commercial director, has helped it secure an exclusive partnership with his former company, which is promoting Zero Deposit to its renting clients.

Zero Deposit is also working alongside some of London’s biggest estate agents, including Foxtons, Knight Frank and Barnard Marcus, to offer more choice to tenants.

So what’s the catch?

Zero Deposit certainly fills a need as it removes the challenge of renting if you don’t have a lump sum for a deposit. However, there is a cost.

Tenants have to pay for the guarantee with a week’s rent, per property, which is non-refundable. While the company plans to bring in discounts for tenants who behave well, this will take time to introduce.

Whether Zero Deposit works for you depends on your personal circumstances.

Do your sums. For those who take good care of where they live and/or move regularly, the longer-term cost may end up higher than the amount needed for a traditional five-week cash deposit.