The government are considering scrapping the insured deposit scheme option for landlords/agents. This is where the landlord/agent keeps the tenancy deposit and insures the amount with a deposit protection scheme. There is a small cost for the landlord/agent. Interest can be gained whilst it’s in the landlord/agents possession.
The idea is that all landlords/agents who take a tenancy deposit will need to use the custodial deposit protection option, where the deposit funds are transferred form the landlord/agent, to the chosen tenancy deposit protection scheme. There is no cost involved to lodge the deposit in this way. At the end of the tenancy, the landlord/agent can request to release the whole amount back to the tenant, or make a claim on the deposit – in which case, if the tenant agrees, it’s paid to the landlord, and if the tenant doesn’t agree, the funds are held by the deposit scheme and an adjudicator decides who gets what based on the evidence that is received from the landlord/agent and tenant.
Housing Minister Matthew Pennycook has told Parliament that the government plans to get rid of the insured deposit option as it creates an “inherent power imbalance” against the tenant.
He also says insured schemes carry an inherent fraud risk, and that deposits can be put at risk if agents don’t maintain Client Money Protection cover or insurance.
The government hasn’t published any legislation to scrap insured deposits yet. They also haven’t shared a target date. With the recent change of leadership, the plans may change. We will watch this space.