Government pledges to continue tenancy deposit schemes

Over two million tenants’ deposits, collectively worth £1.88bn, are currently protected in one of the three tenancy deposit protection schemes.

The information came in a House of Commons answer given by housing minister Grant Shapps.

He said: “Although some landlords continue to have reservations, the majority have found access to a free adjudication service under the schemes helpful in resolving disputes.

“At the same time, tenants welcome the increased security the schemes offer to their money.

“In view of this, the Government are committed to ensuring that tenancy deposit protection continues in future. In this context, we will be taking steps to put in place new insurance schemes when the existing agreements expire in 2013. The current custodial scheme will be in place to 2016.”

The two insurance-backed schemes – Mydeposits, run by the National Landlords Association, and the Tenancy Deposit Scheme, backed by ARLA – expect to begin re-negotiations next year.

The Deposit Protection Service is the custodial scheme, which is run by Computershare and which works by holding tenants’ deposits free of charge. It is funded entirely by interest on the deposits.

At the end of the rental period, the deposit is paid back to whoever is entitled to it. Theoretically, a proportion of the interest accumulated is also paid back at Bank of England base rate minus 2.32%, which means that the DPS pays no interest to consumers once rates are below this level.

The remaining interest is used to fund the service. The law does not allow the DPS to deduct any money from deposits in order to fund its services.

In April 2007, when the schemes went live, interest rates were 5.25% – not the 0.5% they are today.