Concern growing over deposit replacement products

Concern is growing that tenants are being mis-sold deposit replacement products because it is not made clear the cash is non-returnable.

The concern follows a BBC investigation which revealed the practice. The campaigning organisation Generation Rent has also expressed concern that some lettings agents have focused on earning fees from the sale of such products to make up for income lost since the changes to tenancy fees.

Rental deposits

Deposits on tenancies are a normal part of the UK rental market where prospective tenants pay a cash bond which ensures any unpaid damages caused during their tenancy can be paid for.

If there are no problems then the deposit is returned in full when the tenant moves on.

But the deposit replacement products, also known as insurance solutions, being sold by some agents are very different because the cash paid by the tenant in lieu of a standard deposit is non-returnable and therefore will not be repaid when the tenant moves on.

Repeated warnings

There have been repeated warnings from campaign groups and the Financial Ombudsman that firms providing ‘deposit free renting’ are not making it clear that it could cost renters more over time as they will still be liable to pay for damages at the end of the tenancy, despite having been paying for the replacement product.

They are cheaper to start with – typically one week’s rent or a monthly fee, but like any other insurance product the scheme is only fine provided the tenant is fully aware of the terms of the agreement and is happy to abide by them.

Mis-sold

But if the agent does not make the tenant fully aware of what they are signing up to then it may well have been mis-sold and compensation payable.

Eddie Hooker is CEO of Hamilton Fraser which operates both a traditional deposit scheme as well as a replacement product.

He said: “We consider it important to ensure that tenants have full choice as to whether to find a traditional upfront deposit or to manage their cash flow by opting for a deposit replacement product.

Fully aware

“However, tenants must always be fully aware of the terms and conditions of whatever choice they make.

“With a traditional deposit, this means reading the tenancy agreement to understand when a landlord can deduct monies from their deposit, and for a deposit replacement they understand that they will always be responsible for deductions at the end of the tenancy even though they will have paid a fee for the product.

Issue

He continued: “My issue has never been with the replacement products themselves, rather how they are sold and by whom.

“I’m not sure that all products put the tenant at the heart of the decision-making process even though the law states that tenants must be offered a choice of both a traditional deposit and a replacement product.”

Core

Jude Greer, co-founder and CEO of Reposit, said: “When we founded Reposit in 2016 as the first deposit alternative offering in the UK, we believed that FCA regulation, security and transparency had to be at the core of our business.

“This is ingrained to the very core of how our company does business.

Because we are FCA regulated we are audited regularly to ensure that we treat our customers fairly and clearly communicate our product.

Highest standards

“We consistently endeavour to provide the highest standards of training to our partner agents to minimise any misinformation or mis-selling.

Tenants are provided with detailed marketing materials and our full set of TC’s is publicly available.

“To maintain our high standards, Reposit has cut off partners from using our product when it has been mis-sold or when tenants have been pressured.”

Recent government guidance says that replacement products must only be offered as an option to the traditional deposit.