‘No deposit’ insurance product debate

by Property 118

11:44 AM, 28th June 2017
About A year ago

‘No deposit’ insurance product debate

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‘No deposit’ insurance product debate

With tenancy deposits coming under fire recently, Eddie Hooker, CEO of Hamilton Fraser, parent company to mydeposits, looks at whether alternative insurance products, offering a deposit free solution, protect both landlords and tenants, and if they improve the Private Rented Sector (PRS).

To address these questions and many more potential issues, mydeposits has today released a 14-page Whitepaper that reviews how these insurance products operate versus traditional cash tenancy deposits. You can read the Whitepaper in full here.

When paying a deposit at the beginning of a tenancy, a tenant is presented with a fairly substantial cost – the equivalent of six weeks’ or two month’s rent. According to Eddie Hooker, a cheaper alternative would, of course, seem very appealing to many tenants. He says: “There are now several no deposit insurance products that offer a solution whereby a tenant can rent a property without having to put down a deposit. Despite the initial attraction, I have been unable to find clear answers to some pertinent questions. Landlords and tenants entering into such contracts should do so with their eyes wide open.

Tenancy Deposit Protection was introduced as a legal requirement in 2007 following government statistics which suggested that 20% of deposits were being unfairly withheld from tenants. Some ten years later, over four million individual deposits are protected by tenancy deposit protection schemes and dispute levels have fallen to less than 2% of all ending tenancies.

“The no deposit products use the 2% dispute levels as proof that they can keep their claims and premiums low, but they are misusing the statistics. In fact, more than 40% of deposits are returned to the tenant with an agreed deduction. That means at least 40% of landlords will have to make a claim on their insurance to cover costs. Processing claims costs money and claim costs get added to the overall premium.” states Eddie. “Like most insurance products, the no deposit options reserve the right to subrogate their losses from the party responsible, so does that mean the tenant will be pursued for a claim that they may or may not be responsible for? Will tenants start to receive red letters, black lists and court judgements for missing payments?”

The Whitepaper also reviews how tenancy deposit protection has boosted transparency in the sector.

Eddie continues: “The Prescribed Information requirements and formal dispute resolution service are set in stone by legislation and are monitored by government set timescales. In complex deposit disputes which require an understanding of the Housing Law and Consumer and Agency Law, would landlords and tenants prefer an impartial adjudicator employed by a deposit scheme reviewing their case, or an insurance claims handling process? Disputes raised through deposit protection schemes are free and the process must be fair for both parties. The no deposit insurance products remove these safeguards leaving landlords and tenants to rely on the insurer’s terms and conditions.”

In the light of the Queen’s Speech, where it was announced that deposits will be capped at no more than one month’s rent, Eddie says: “Following this news, I question whether the no deposit products will be as interesting to tenants as they may have been. These products command a premium the equivalent to one weeks’ rent. This will now equate to 20-25% of a deposit and is non-refundable, whilst also leaving a tenant liable for reimbursing the insurer for any claims they pay out. I struggle to see how this is a viable option for the hardest pressed tenants and is not just another fee they will have to pay.”

Eddie concludes by reiterating that he can see the merits of an alternative to deposits, but believes the current crop fall foul of the most basic protection that tenancy deposit protection schemes were created to administer in the first place. “The Whitepaper goes some way in voicing my concerns. I do welcome change for the PRS and new products that make people’s lives easier. However, the sector needs absolute transparency and fairness, particularly when tenancy deposit protection has been so successful in raising standards.”



Comments

Ajay Jagota

8:33 AM, 29th June 2017
About A year ago

As for the, all the new schemes remember Mr Hooker “the market decides” not you!

Alison King

13:55 PM, 29th June 2017
About A year ago

Reply to the comment left by "Ajay Jagota" at "29/06/2017 - 09:11":

Did I read that right? an "independent third party" would decide what maintenance needs doing?
Their opinion would be for free no doubt; otherwise where is the saving?

Luke P

14:59 PM, 29th June 2017
About A year ago

Literally everything with you is a self-promoting advert, Ajay. You've completely infected Landlord/Letting Agent Today, please don't bring that sort of thing here.

You penned your own Wikipedia entry, which is nothing more than a 'LOOK-AT-ME' article and an opportunity to promote your 'KIS' nonsense.

Ajay Jagota

15:09 PM, 29th June 2017
About A year ago

"you are entitled to your opinion, but equally I am entitled to have mine"
Incase you missed the headline it says "debate...."

Monty Bodkin

15:31 PM, 29th June 2017
About A year ago

"particularly when tenancy deposit protection has been so successful in raising standards."

Do me a favour. The deposit protection debacle has been a farce.

As for deposit insurance, it misses the point of a tenant having some skin in the game.

John Frith

16:17 PM, 29th June 2017
About A year ago

I have suggested before on this forum that the insurance companies are obvious candidates for implementing some mechanism to make renters feel more responsible for their rental defaults - in much the same way that I'm aware that if others make claims on my drivers insurance that my premium will rise. But this won't happen unless the tenant pays the premium, and what happens if they stop paying?

PS Ajay's link goes to "for sale" domain. It should be .co.uk, not .com.

Dylan Morris

13:52 PM, 30th June 2017
About A year ago

"These products command a premium the equivalent to one weeks’ rent. This will now equate to 20-25% of a deposit and is non-refundable".

So the tenant is guaranteed to lose a week's rent. What a great scheme. Forget the insurers, I think I'll start doing this what a nice little earner..... ha ha.

Monty Bodkin

14:39 PM, 30th June 2017
About A year ago

Reply to the comment left by "Dylan Morris" at "30/06/2017 - 13:52":

So the tenant is guaranteed to lose a week’s rent. What a great scheme. Forget the insurers, I think I’ll start doing this what a nice little earner….. ha ha.

Well, yes. A landlord with a spread of properties, thoroughly vetting their own tenants, is far better off self insuring. Plus they get a guaranteed payout in the event of a claim.

But both methods are making hefty profits off landlords and tenants for doing very little.

Monty Bodkin

14:50 PM, 30th June 2017
About A year ago

Reply to the comment left by "Monty Bodkin" at "30/06/2017 - 14:39":

Landlords using the DPS might get a warm glow from knowing that some of the profits being made from them have been donated to Shelter;

http://www.depositprotection.com/charity


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