Zero Deposit Schemes: How Do They Work?
The concept of zero deposit schemes have been around for a while now but have only recently started to become widely available and used by many landlords and letting agents.
From April, Graham & Co will be offering a zero deposit option for our customers. Here we take a closer look at what this is and what it means in reality for both landlords and tenants.
What Are Zero Deposit Schemes?
The traditional approach to deposits is to ask tenants to pay a set amount to cover any damage to the property or circumstances where the individual is unable to pay the rent. This is usually an amount equivalent to around 6 weeks’ rent. It can make it difficult for tenants to get the appropriate deposit together.
The zero deposit scheme allows a tenant to rent a property by only paying the equivalent of the first weeks’ rent along with an annual admin fee of £26. The scheme covers the landlord for the 6 weeks’ rent deposit that they would normally have registered to protect their interests over the term of the tenancy.
If a tenant does cause damage or is unable to pay their rent, the scheme protects the landlord as if they had a traditional security deposit.
The Benefits for Landlords and Tenants
Acquiring your deposit prior to renting can be a challenge. If you are a tenant and looking to move into a property that has a weekly rent of £300, for example, even with just a five-week deposit you are looking at finding £1500 before you can move in.
If you only need to find the initial £300 it’s a lot easier. Tenants can then put the rest of their money towards other moving expenses such as transporting belongings or buying new things for their home, which is why many are now looking for properties to rent that are accompanied by zero deposit schemes.
While it’s highly beneficial for tenants, what do landlords get out of the scheme?
First of all, they are covered as before which means there will still be that safety net should, for example, a tenant suddenly quit the property and leave it empty. With renters favouring properties that are zero deposit, being a member of the scheme also means that you have access to a wider range of potential tenants.
- Landlords don’t have to register their deposit as they do with traditional approaches so there’s less paperwork and admin to worry about.
- The 6 months rent cover is still there, it’s just being underwritten by a company that is providing the scheme.
- Landlords are less likely to see longer void periods because potential tenants no longer need to save so much to afford the deposit.
- If there are disputes, these will be handled by the government-backed dispute service or TDS which means you are likely to get your money back quicker.
Why Graham & Co Are Introducing the Scheme
At Graham & Co, we think the zero deposit scheme provides more flexibility to both tenants and landlords while still providing the support and safety net that landlords are looking for and making it much easier for tenants to find a new rental home. It’s easier for landlords to administer and tenants don’t have the worry of trying to find a substantial deposit before they move into a property.
We’ll be bringing the scheme into operation at the beginning of April and we firmly believe it will benefit both landlords and tenants. Contact us today to find out more about the scheme.