Deposit replacement schemes (DRS) are becoming ever more popular. Tenants are looking for more cost-effective ways to rent a property and also want a digital solution to their tenancy administration responsibilities. With this in mind, more and more letting agents and landlords are also paying attention to different ways of paying the deposit. In this article, we explain how these schemes work.
Summary of DRS
With a DRS, the tenant pays a smaller non-refundable fee, instead of the traditional cash deposit which could often be up to five weeks’ rent. Deposit replacement schemes provide the landlord with protection that is either equivalent or more than a traditional deposit, should any costs not be recovered from the tenant. Tenants who pay for a deposit replacement scheme will still be fully responsible for paying rent and fulfilling the terms of the tenancy agreement.
Pros and cons of Deposit Replacement Schemes for letting agents and Landlords
Benefits:
- Letting agents can offer their landlords a higher level of financial protection compared to a traditional deposit.
- Reduction in administration time compared to a traditional deposit.
- Potential for a new revenue stream for lettings agents by receiving a fully compliant commission.
- Tenants who choose a deposit replacement scheme have increased liability to comply with their tenancy agreement.
- Claims will be initially paid by the DRS, aiming to reduce the claim time compared to a traditional registration scheme.
- Deposit replacement schemes also reduce void periods, as they reduce upfront costs for potential tenants to secure a property.
Disadvantages:
- It is necessary as a letting agent or landlord to give prospective tenants the option between a deposit replacement scheme and a traditional deposit.
Pros and cons of Deposit Replacement Schemes for tenants?
Benefits:
- Tenants only pay a relatively small non-refundable fee instead of a traditional, refundable deposit of five or six weeks’ rent.
- Deposit replacement schemes offer a reduced total move-in cost for tenants.
Disadvantages:
- DRS may charge a yearly renewal fee and others monthly. DRS could, therefore, sometimes cost more overall than a traditional deposit.
What is the preference currently?
Traditional deposits are still the preferred method by the majority. However, the number of people choosing deposit replacement services is growing.
We hope you have found this information useful. At Lifeboat Lettings, we have seen a steady increase in the use of our Deposit Replacement Scheme (supplied by Reposit) over the last couple of years. If you are a landlord and would like to find out more about the scheme we use, or if you need assistance with our available services such as full management or tenant find, please don’t hesitate to get in touch via email contact@lifeboatlettings.com or phone us on 01233 802803.
