An alarming amount of deposits could be left unprotected

Anna Bibby, 06 February 2020

From 2007 onwards, it has been a legal requirement for landlords and letting agents to protect tenants’ deposits in a government-approved tenancy deposit protection scheme (DPS). However, a recent study has found that over a million deposits in the private rented sector (PRS) are not correctly protected.

The analysis - carried out by insurance company Hamilton Fraser’s deposit replacement provider Ome - reviewed the number of deposits that the company looks after and compared them to the statistics with the latest English Housing Survey. Mydeposits, a sister company of Ome, manages around 25% of the total deposit protection market, which amounts to over 876,000 live deposits out of an estimated 3.5 million across the entire market. When you consider that the English Housing Survey found that there are around 4.6 million active assured shorthold tenancies across the UK, this means that there are potentially 1.1 million tenancies in the UK that do not have legally protected deposits.

Although these figures are alarming, it doesn’t necessarily mean that there are over a million landlords and letting agents acting unlawfully. There are two reasons why landlords may not be registering a tenants’ deposit with a DPS and both of which are perfectly legal. The first reason is that many landlords are now opting for deposit replacement schemes as opposed to traditional deposits. Deposit replacement schemes are essentially an insurance policy where tenants pay a small fee (which usually amounts to one week’s worth of rent) and the company covers the cost of any damage caused by tenants. Another reason that a deposit may not be registered with a DPS is that landlords are simply not asking for a deposit. This is particularly common in build-to-rent schemes that choose to forgo traditional deposits and offer complimentary services, such as cleaning and maintenance to their tenants.

Matthew Hooker, Co-founder of Ome, commented: “The reality is that the private rental sector is changing, and has been changing gradually through the formal introduction of deposit protection in 2006 and the subsequent launch of the more traditional protection schemes.

“It’s impossible to tell just how many deposits are still sat unprotected in the bank accounts of either rogue landlords or agents but based on market data we can make a conservative estimate that this total value runs into the hundreds of millions of pounds.

According to the research, around 600,000 landlords have opted for the aforementioned services, but that still leaves around 500,000 landlords that are not acting compliantly when it comes to protecting their tenants’ deposits. There are huge penalties for landlords that fail to protect tenants’ deposits in a DPS schemes - these include fines of up to three times the amount of the deposit (on top of the deposit itself) and any Section 21 notice that they issue will not be valid until the deposit is returned.

If you’re a tenant and you’re unsure if your deposit is adequately protected, you can contact each of the three government approved tenancy protection schemes to make sure that it has been protected - it is also worth noting that your landlord (or agent) has to provide proof that your deposit has been protected at the start of the tenancy. If they have no record of your deposit, you can contact the Citizen’s Advice Bureau for further advice.

Clearly, landlord’s deposit-taking habits are changing and there are now various ways to ensure that any damages in their properties are covered. However, if you are a landlord, you need to make sure that you are clued up on the laws and procedures surrounding deposit protection.

Do you need more advice on deposits? Download our Tenant Guide!


An alarming amount of deposits could be left unprotected

Anna Bibby, 06 February 2020

From 2007 onwards, it has been a legal requirement for landlords and letting agents to protect tenants’ deposits in a government-approved tenancy deposit protection scheme (DPS). However, a recent study has found that over a million deposits in the private rented sector (PRS) are not correctly protected.

The analysis - carried out by insurance company Hamilton Fraser’s deposit replacement provider Ome - reviewed the number of deposits that the company looks after and compared them to the statistics with the latest English Housing Survey. Mydeposits, a sister company of Ome, manages around 25% of the total deposit protection market, which amounts to over 876,000 live deposits out of an estimated 3.5 million across the entire market. When you consider that the English Housing Survey found that there are around 4.6 million active assured shorthold tenancies across the UK, this means that there are potentially 1.1 million tenancies in the UK that do not have legally protected deposits.

Although these figures are alarming, it doesn’t necessarily mean that there are over a million landlords and letting agents acting unlawfully. There are two reasons why landlords may not be registering a tenants’ deposit with a DPS and both of which are perfectly legal. The first reason is that many landlords are now opting for deposit replacement schemes as opposed to traditional deposits. Deposit replacement schemes are essentially an insurance policy where tenants pay a small fee (which usually amounts to one week’s worth of rent) and the company covers the cost of any damage caused by tenants. Another reason that a deposit may not be registered with a DPS is that landlords are simply not asking for a deposit. This is particularly common in build-to-rent schemes that choose to forgo traditional deposits and offer complimentary services, such as cleaning and maintenance to their tenants.

Matthew Hooker, Co-founder of Ome, commented: “The reality is that the private rental sector is changing, and has been changing gradually through the formal introduction of deposit protection in 2006 and the subsequent launch of the more traditional protection schemes.

“It’s impossible to tell just how many deposits are still sat unprotected in the bank accounts of either rogue landlords or agents but based on market data we can make a conservative estimate that this total value runs into the hundreds of millions of pounds.

According to the research, around 600,000 landlords have opted for the aforementioned services, but that still leaves around 500,000 landlords that are not acting compliantly when it comes to protecting their tenants’ deposits. There are huge penalties for landlords that fail to protect tenants’ deposits in a DPS schemes - these include fines of up to three times the amount of the deposit (on top of the deposit itself) and any Section 21 notice that they issue will not be valid until the deposit is returned.

If you’re a tenant and you’re unsure if your deposit is adequately protected, you can contact each of the three government approved tenancy protection schemes to make sure that it has been protected - it is also worth noting that your landlord (or agent) has to provide proof that your deposit has been protected at the start of the tenancy. If they have no record of your deposit, you can contact the Citizen’s Advice Bureau for further advice.

Clearly, landlord’s deposit-taking habits are changing and there are now various ways to ensure that any damages in their properties are covered. However, if you are a landlord, you need to make sure that you are clued up on the laws and procedures surrounding deposit protection.

Do you need more advice on deposits? Download our Tenant Guide!