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Landlords taking out ‘no deposit’ insurance should keep ‘eyes wide open’

It is now 10 years since tenancy deposit schemes were first introduced in England and Wales, providing landlords with greater protection should the tenant breach the terms of the tenancy agreement, such as causing damage or not paying rent, as it allows them to make appropriate deductions if necessary. 

But with tenancy deposits coming under fire recently, some landlords are now seeking alternative ‘no deposit’ insurance, offering a deposit free solution, in order to protect themselves and tenants. 

But Eddie Hooker, CEO of Hamilton Fraser, parent company to mydeposits, is not entirely convinced by some of the alternative products on offer, after his firm compiled a 14-page whitepaper that reviews how these insurance products operate versus traditional cash tenancy deposits. You can read the Whitepaper in full here.

Hooker said: “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.” 

More than four million individual deposits are now 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,” he added. “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.” 

Hooker said that he can see the merits of an alternative to deposits, but pointed out that processing claims costs money and claim costs get added to the overall premium. 

He continued: “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?” 

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