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Zero Deposits – Beyond The Hype!

Zero Deposits is the new buzzword in Lettings at the moment. You only have to pay a visit to any major rentals portal and on many adverts you will see a humongous red slash across the picture gleefully announcing zero deposits.

As a tenant, with zero deposit you can rent your home without paying a large deposit. You pay a non-refundable fee which is the equivalent of one week’s rent. You are in effect buying an insurance policy the price of one week’s rent. The policy protects the landlord for up to 6 weeks’ worth of rent. If you stay in the property for more than 12 months, there is a yearly administration fee of £26 to pay. If it is a group tenancy, the £26 is split between the group. It makes moving more affordable, which is good news.

So, what is the reality beyond the hype? It is the greatest thing since the proverbial sliced pan or is it a PPI nightmare in waiting?

It is great news for tenants and reassurance for Landlords at first glance. But let’s delve a little deeper. The majority of tenants are great people with a sound moral fibre, but there are a small percentage of rogue tenants, which every Landlord has encountered at some time or another.

The traditional deposit is, for some, a deterrent. But a good tenant can turn rogue and not necessarily care about, for example, a £600 deposit. Because if they turn rogue and it takes months for a Landlord to get them out under the current Judicial system, the £600 won’t even touch the sides of the losses incurred by the Landlord. The traditional method involves a tenant paying a £600 deposit and £600 month’s rent in advance. Meanwhile there is probably another £600 of theirs already in a deposit scheme from their previous tenancy which hasn’t yet cleared to their bank account. Not many of us have £1800 to throw around, so to speak. One benefit to both parties is that the move can be accomplished quickly rather than waiting for referencing reports.

The downside is that even with a zero deposit, a Landlord should always conduct referencing, and even though many rogue tenants pass referencing, it is better than nothing. It doesn’t necessarily cut down on paperwork. Checking their last 3 months bank statement gives you a good idea of what their spending habits are. It shows you in which order they pay their bills or spend on addictive leisure pursuits. Some tenants have a glowing financial history, but they might also have a history of anti-social behaviour, therefore it is vital to do all the normal checks if you are using the zero deposit scheme.

Always take a home owner guarantor. And when checking their background, their last Landlord might tell you they were excellent tenants because they can’t get rid of them soon enough, whereas if you go to the previous Landlord, you will get the truth. Checking tenants social media accounts is also a great way of gauging their reliability. You should also ask a few pre-qualifying questions such as have they a CCJ, why are they moving etc. I have a list if anybody wants it.

The upside for Landlords is that their rights are protected, to a point. The zero deposit insurance provides the equivalent of 6 weeks rent should the tenant fall into arrears or cause damage. But because a Landlord can’t serve notice until tenant is 2 months/8 weeks in arrears, and then might not get his/her property back for several months incurring more losses, the 6 weeks protection is about as useful as a chocolate teapot. When looking for a tenant, the Landlord cannot just offer them the zero deposit scheme, he/she has to also give them the option of the traditional deposit with one of the government approved deposit organisations. Under the scheme arrears and outstanding damage has to be settled and disputes are handled by the DPS or TDS.

In conclusion, it would work well in some cases and should be approached with caution!