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Deposit-free renting sounds good – or could tenants lose out?

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More sub-prime lending ? 

Deposit-free renting sounds good – or could tenants lose out?

https://www.theguardian.com/money/2017/jun/10/deposit-free-renting-will-tenants-lose-out

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Schemes are emerging that claim to offer deposit-free renting. So how do they work and what’s the catch?

One in three tenants borrow money to pay rent, says Shelter

 

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In most cases, instead of the tenant putting down the equivalent of several weeks’ rent, an insurance policy covers this instead. It helps tenants with cash flow while landlords are still covered for the full deposit. However, tenants still have to cough up for damage or unpaid rent at the end of the tenancy. Insurers use a little-known clause called “subrogation” which allows them to pursue a third party (the tenant) to recover any claim.

Ajay Jagota is a letting agent based in the north-east of England who reckons the traditional deposit system is fundamentally inadequate. “From a landlord’s perspective, it limits potential tenants to those who have thousands of pounds to hand, or risks putting their customers in a tight financial spot from the first day of your contract. It makes no sense,” he says.

Jagota is the founder of deposit replacement insurance scheme Dlighted. The policy, issued to the landlord or letting agent, indemnifies the risk of tenant damage or unpaid rent up to £7,500 a month. It costs £129 a year for rents up to £2,500 a month on the assumption the tenant passes referencing checks. Crucially, it’s paid for by the letting agent or landlord, not the renter. At the end of a tenancy, disputes are initially resolved directly with the tenant. If an agreement can’t be reached, the landlord or agent can make a claim on the insurance, with the tenant liable for the cost of a successful claim.

A couple of other schemes work in a similar way but with a vital difference: the tenant pays for the policy. Zero Deposit Scheme (ZDS) is due to be launched later this year by Global Property Ventures. Headed up by Zoopla’s former commercial director Jon Notley, it offers an insurance policy which the tenant buys. It is underwritten by Munich Re and costs the equivalent of a week’s rent.

“It provides the landlord with the same cover as a cash security deposit, with the tenant retaining responsibility for any damage or unpaid rent at the end of the tenancy,” Notley says. “Although most landlords will acknowledge the affordability issues associated with deposits, understandably they are reluctant to give up the security. Zero Deposit gives landlords six weeks’ cover, which removes this concern.”

ZDS pays letting agents referral fees for signing up tenants. The policy remains in place for the whole tenancy, with tenants paying a £25 administration fee each subsequent year. Any disputes at checkout are resolved by an alternative dispute resolution service, in the same way they would be if a deposit was held in a deposit protection scheme. If it rules the landlord should be paid by the tenant, ZDS pays the sum to the landlord and then claims the money from the tenant.

 

Edited by Saving For a Space Ship

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Some comedy gold in the comments.

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I keyed his big dumb Saab completely & slashed his tyres as he looked out the window

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Rubbish. Prices for rent are what the market (i.e. landlords) dictate. The tenant has no influence at all.

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Circumstantial evidence of the tenants actually shitting in the toilets (seriously).

 

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Wonder if he realises that a lot of renters are now familiar with the tenant deposit scheme, and the potential to actually get a decent chunk of money out of the landlord.

Lower deposit, higher rent. Smaller penalty for not protecting?

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