On 5 August a report published by the Centre for Policy Studies – Down with deposits: the case for rental insurance proposes that the government should promote a deposit replacement insurance system as an alternative to deposits.
Polling by YouGov shows that 43% of renters would support a system of deposit replacement insurance with a small cost rather than the current system.
The report suggests that the average renter loses over £300 per tenancy in lost interest and inflation because of the current tenancy deposit system. Tenants also suggest that paying up front deposits means that they struggle to move between properties.
Therefore, to combat these issues the report suggest that the Government should promote a deposit replacement insurance system. This alternative system would allow tenants to insure against potential damage or missed rent payments without having to pay a deposit up front.
These insurance schemes could be developed within the existing insurance market and it is suggested that it could allow renters to build up a reputation as a good tenant through a ratings system such as a no claims bonus.
The prospect of an insurance-based deposit is in its very early stages at present but there are a number of such products on the market. Agents are looking at them closely as some of them may offer a potential commission to the agent and so will replace some of the revenue lost by the ban on tenant fees. Undoubtedly these products will work for some tenants.
However, there are downsides too. First, given the very low interest rates in the sector the idea that a tenant is losing £300 per tenancy seems hard to accept. Second, the cost of many deposit products is in the realm of £300 at the moment and given that this is an insurance premium which will not be recouped it is hard to see where the benefit lies. Third, these products are not going to be available universally and there will be some tenant groups who will not qualify and will still be reliant on a traditional deposit product.
There may be other more complex advantages and disadvantages. However, it is still very early days and the providers will need to build up some knowledge based on actual real-world experience with their products. It is positive to see innovation within the sector and whether this is the right innovation or not, the fact that thought is being given to changes in the way things operate is likely to be good for everyone.