When renting a property out, letting agents and landlords recognise that it is important to take a deposit from the tenant and place it in a government-backed tenancy deposit scheme as protection to ensure that any potential damage or unpaid rent at the end of the tenancy is covered.
But raising enough money for a deposit can be a real challenge for many renters, who usually have to stump up the equivalent of up to five weeks’ rent as a deposit.
Given the financial pressure on renters under the existing deposit system, nil deposit schemes provide a helpful alternative to a traditional deposit as they offer protection for landlords at the same time as helping tenants who do not have big reserves in place to pay a month's rent and up to five weeks deposit upfront.
Consequently, a growing number of agents are signing up to offer the insurance-based model as an alternative to a rental deposit.
Allowing tenants to acquire an insurance policy in lieu of a deposit reduces the financial pressures on many renters, which explains why deposit-free renting solutions, like that offered by Zero Deposit, which is headed up by Zoopla’s former commercial director Jon Notley, are proving so popular.
Zero Deposit offers an insurance policy underwritten by Munich Re which the tenant acquires for a one-off payment at the equivalent of one week’s rent, no matter the length of the tenancy, plus an annual admin fee of £26.
Under the terms of the scheme, tenants remain accountable for any damage or unpaid rents, with any disputes over claims by the landlord handled by the Tenancy Deposit Scheme (TDS), which has an exclusive partnership with Zero Deposit.
To help us understand more about the product, Jon Notley has taken time out of his busy schedule to talk exclusively to Estate Agent Today about the initiative...
What was the inspiration behind your Zero Deposit replacement product?
Affordability is a massive issue for tenants and slows down the process for not only them, but also landlords and agents.
Although other products were around in the market before Zero Deposit, we felt that there was nothing available that provided landlords with the security they want whilst also being simple enough for tenants to understand. This provided the motivation to create Zero Deposit and to give agents and landlords a product that had real credibility.
How has the tenancy deposit alternative scheme been received by letting agents?
Understandably agents are very cautious when it comes to accepting anything other than a cash deposit on behalf of their landlord clients. We have found that when agents look carefully at what we are doing, they quickly understand the benefits we offer along with the safeguards we have put in place.
So how many letting agent offices are actually now signed up to Zero Deposit and do you expect to see further growth?
Today we have more than 2,300 letting agent offices signed up and we have also agreed partnerships with the National Landlord Association and the Residential Landlord Association.
We have a huge range of agents on board representing almost every segment of the UK letting market.
Is Zero Deposit just gaining traction in London or is it across the country?
We have around 700 London letting agent offices on board, but also around 1,600 offices outside of London. The Zero Deposit Guarantee is popular right across the UK.
How many tenancies are now covered by Zero Deposit?
We have already covered nearly 16,000 tenancies, which means that we have helped over 25,000 tenants reduce the upfront cost of moving.
To date we have provided nearly £20m in deposit cover to landlords with many end of tenancy claims already settled.
Clearly many of the large agents are now offering the Zero Deposit Guarantee product, but are there many smaller independent firms offering the service?
We have hundreds of smaller agent firms on board and this number is growing every week.
As awareness of our product grows, along with an understanding of how it works and the safeguards we have put in place for landlords, we are finding large and smaller agents are embracing our FCA regulated product.
What level of commission can an agent earn by offering the Zero Deposit Guarantee?
We pay between 8% and 18% commission depending on the size of an agent’s landlord portfolio.
Increasingly though, agents are realising that our product can help them get more demand and help them rent their properties faster, which offers much more benefit than commission alone.
How can more agents benefit by adopting deposit replacement as an addition to their letting toolkit?
There is commission available for every successful product sale, but the benefits to agents are much greater than that.
We did some early research with one of our agent partners and saw they could get up to 26% more click throughs from the portals when advertising properties with the Zero Deposit Guarantee available.
Agents with multi listed properties also have a big advantage, and the simple fact that tenants have to find less cash when they move can speed the process up.
There is also the five-week cap on most cash deposits which means our six weeks cover offers landlords greater protection.
The Zero Deposit Guarantee is one of those rare products that offers a clear benefit to everyone involved in the rental process.
How has your previous role as commercial director at Zoopla helped to ensure agents can improve their clickthrough rate when listing properties on the main property portals?
It is wonderful to be able to offer agents a product that can improve their portal response but also pays them a commission rather than costing them money!
Looking at the 1,000-plus reviews listed on Trustpilot, the consumer review website, why do you think Zero Deposit has also been welcomed by so many landlords and tenants?
We knew that the Zero Deposit Guarantee would be well received, but we have been delighted by the overwhelmingly positive response that we have had. Clearly many tenants appreciate having this option alongside the cash deposit, and we have made the sign up process as simple as possible for everyone involved.
Why are some agents and landlords still reluctant to accept tenants acquiring an insurance policy in lieu of a deposit?
Landlords and agents are understandably reluctant to accept something in place of a cash deposit and want to be sure that if they do, all of the protections are in place when it matters at the end of the tenancy.
We are finding that as they find out more about Zero Deposit, they have confidence that our FCA regulated guarantee provides them with more protection than a cash deposit.
With TDS stepping in when there’s a dispute, and with every guarantee backed by the Munich Re group, one of the world’s largest reinsurers, we are seeing a steadily increasing acceptance of our product, meaning that more and more tenants are benefiting from the Zero Deposit Guarantee.
So what tenant credit checks are actually undertaken?
Subject to vetting their reference provider, we are happy to accept our agent partner’s existing referencing process. This makes it much easier for agents to come on board if they don’t have to change what they are doing to offer our product. The same applies for their existing rent guarantee insurance, which is often provided by their reference provider too.
Do you think that Zero Deposit is now the largest deposit alternative in the UK?
Yes. We believe that Zero Deposit is the clear market leader and this has happened because our product is the most compliant and offers the best protections to landlords, tenants and agents, along with being very simple to roll out.
What’s your message to agents that have not yet embraced the idea of offering a tenancy deposit alternative scheme?
Some agents believe that deposit replacement is something that only benefits tenants, when in reality it is something that offers agents and landlords substantial advantages too. Agents are reassuringly cautious about accepting anything that could expose their landlord customers to risk.
Whatever agents decide to do, we urge them to only embrace products that offer tenants and landlords the benefits of FCA regulation, as this provides a safety net and quality threshold that is essential to ensure everyone is protected.
Sadly, there are providers out there that seem to be actively avoiding regulation, and are even selling this lack of regulation as a benefit to agents. We believe that this lack of regulation could expose agents to risks that could be disastrous if we have a repeat of the credit crunch and could cause significant damage to their businesses and reputations.
*Marc Da Silva is Estate Agent Today and Letting Agent Today Features Editor and Editor of Landlord Today. You can follow him on Twitter @propertyjourno