What is a Zero Deposit Scheme?

Whilst it’s certainly not as expensive as buying a house, renting can still be a pricey experience. And in particular, the payments needed to start your tenancy. They can leave you out of pocket before you’ve even got the keys in your hand.

But luckily it looks like the tides are changing for the better with the introduction of zero deposit schemes. In fact, the days of having to fork out thousands to secure a new home could soon be history.

The tenant fee ban was the first step. This means that you don’t have to pay any admin fees to the letting agent or your landlord to rent the property.

The cost of the rent itself is here to stay. But there’s another cost that some businesses are looking to tackle – the tenancy deposit.

And it’s being addressed through a zero deposit scheme.

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This is where you wouldn’t have to pay the typical 5 weeks’ rent as a security deposit. Instead, you’d pay a check-in fee equal to just 1 week’s rent.

It’s an option that many landlords are adopting. In particular, the build-to-rent landlords that we feature on Right Rent.

So what is a zero deposit scheme and how does it work? Well, read on and we’ll tell you everything you need to know.

The pains of security deposits

Security deposits are definitely one of the biggest pain points with renting. They are legally limited to 5 weeks’ rent, but this can still be a fair chunk of money.

If you were paying £1,820 per month to rent a 2-bed, times that by 12 to get the annual rent of £21,840. Divide that by 52 to get your weekly rent of £420. And by multiplying that by 5, you get your security deposit of £2,100.

Add that to the £1,820 for the first month’s rent and you’ll have to pay out £3,920 before you’ve even got the keys! And that’s before any costs associated with moving.

Of course, you do get that security deposit back when you move out. As long as there’s no damage to the property of course. But that money often becomes dead money. You earn no interest on it, it will be worth less due to inflation, and if you’re moving into another rental it’s likely to go straight into another security deposit pot.

What is a zero deposit scheme?

A zero deposit scheme aims to address these issues. They look to remove the need to hand over a hefty amount of cash and instead allow you to hold onto that money and spend it on the things that matter more to you.

And importantly, they do all this whilst still giving the landlord the security they need too.

So instead of a deposit, you would pay a moving-in fee equal to just 1 week’s rent. This money goes to the zero deposit provider rather than the landlord. And it’s important to note that this fee is non-refundable. But it would reduce your initial security deposit costs by a whopping 80%!

So back to our 2-bed example at £1,820 per month. With the zero deposit option instead, your costs to move in would be reduced to £2,240. That’s a reduction of £1,680!

This is no small figure and this could provide many renters with a more affordable way of moving home.

Couple this with the tenant fee ban and renters could save thousands of pounds on move day compared to just a few years ago.

What’s the benefit for renters?

The obvious benefit for renters is more money staying in your bank account. If you’re saving £1,680 with a zero deposit and another £500 on admin fees, then that’s £2,180 staying in your back pocket.

That money could stay in your bank account and act as a safety buffer in an emergency. It could go into a savings account or an investment, and earn interest.

Or if you’re renting somewhere unfurnished, then it could go towards some brand new furniture or décor.

And perhaps most importantly, it will reduce stress. Moving home is exciting, but it can be stressful. And financial tensions can only add to that. So freeing up some cash to stay put in your bank account can alleviate those financial worries.

What’s the benefit for landlords?

This is an important question to ask, as the tenancy deposit serves a purpose. It acts as a buffer for any damage caused to the landlord’s property.

So why would they remove that buffer and get nothing as security?!

Well, landlords still have legal protections. Zero deposit schemes protect landlords for up to 10 weeks’ worth of rent. And if there’s a dispute, then an official, regulated third party that’s well-experienced in these matters can act as the mediator and decision maker.

And there are other benefits for landlords too.

They don’t have the responsibility (and liability) of holding onto and registering the security deposits any more. And their rentals will definitely be more appealing to tenants. So they may find that acquiring new residents just got a lot easier.

Who manages zero deposit schemes?

In terms of the companies that manage zero deposit schemes, there are a few in the market now. Two of the biggest names are:

Flatfair

Flatfair are one of the most well-known and work with a lot of build-to-rent brands. They offer up to 10 weeks’ rent of cover and also sort referencing for landlords at the same time.

Zero Deposit

ZeroDeposit.com are a popular choice with many letting agents. They offer cover equal to 6 weeks’ rent.

Which build-to-rent brands offer zero deposits?

There are many build-to-rent brands offering zero deposit schemes now. Take a look at the homes to rent below:

Zero deposit scheme

So when you next approach a landlord or letting agent about a property, make sure you quiz them on zero deposits.

Many build-to-rent landlords will already be aware and offering the benefit. But many private landlords may not have considered it yet. So it’s worth giving them a nudge!

After all, it works for both the landlord and the tenant. It gives the landlord the security they need and the tenant gets a cheaper and fairer way to rent their next home.