Zero Deposit Schemes
As a result of the Tenant Fee Ban coming into effect from the 1st June, we have seen a rise of "Zero Deposit Schemes" being introduced by other letting agencies. These agents see this as a way to fill the gap that will be left from tenant's no longer being charged fees. As a result of a review of these schemes Lenwell will not be offering them as it is a higher cost to the tenant and there is huge scope to miss-sell the product. Lenwell prides itself on offering a transparent and simple service to all of its customers.
There are a number of these schemes already on the market, each paying varying amounts of commission to the letting agency, with risks that agencies will choose the ones paying the highest rather than the one most suited to the tenant. ARLA Propertymark analysis showed that commissions paid by deposit-free schemes range from single figures to up to 30% of the tenants premium. Industry commentators and providers have acknowledged this could create issues, especially if firms are not transparent, as tenants and landlords could be pushed into schemes with varying levels of cover and regulation.
After careful consideration and analysis of the market, Lenwell have decided to not offer these schemes based on the following:
- After a survey of the available schemes we found it can take a minimum of 3 months and up to 5 months to settle a disputed deposit claim. This means there would be no funds available to rectify damage until the claim is concluded.
- Tenants are paying for the product (1 weeks rent) then still paying for any deposit claims. This means that unlike with a standard deposit if a tenant leaves the property well they receive their money back and are not out of pocket, they will definitely lose at least 1 weeks rent using a zero deposit scheme.
- In some schemes tenants are charged if they raise a dispute and lose. This may be designed to eliminate disputes on every claim raised but could also be seen as bullying. In some cases we have seen that the tenants are being penalised with a £120 charge for a failed dispute.
- Control is lost as a third party is dealing with claim. This means when trying to resolve a deposit claim or disputed claim a third party is involved which adds a significant loss of control for the agent and the time to resolve is unnecessarily extended.
- Tenants need to be fully aware that they will still have to pay the cost of any valid claim at the end plus the initial premium. There is a real risk that miss-sold tenants will believe that the premium they pay at the offset is the only amount they need to pay. They may not be aware that at termination of tenancy they are still liable for any valid deposit claims. This could result in them making no effort to leave the property well or not paying the last month’s rent.
- Risk of miss-selling if only offering zero deposit and not a standard deposit.
Because of this and all of the above reasons we are concerned it become a PPI style scenario and agents will need to return premiums and cover could end. This would leave tenancies unprotected.