Over £3 billion of tenant deposits are currently protected via insured tenancy deposit schemes across England and Wales – the ones to be scrapped under government proposals. 

The government wants those scrapped and wants all deposits to be protected via custodial arrangements.

An analysis by The Lettings Partnership shows that there are currently an estimated 4.7m tenancy deposits protected across England and Wales. 

Of these, just over 2.1m, equivalent to 45.6% of the market, are held within insured schemes, while just over 2.5m (54.4%) are protected through custodial schemes.

However, insured schemes account for the larger share of deposit value. 

The analysis estimated that north of £3 billion of tenant deposit funds are currently protected via insured arrangements, representing 54.7% of the total deposit value held across the nation. 

In comparison, custodial schemes account for £2.5 billion, or 45.3%.

The proposal has prompted considerable debate across the lettings industry, around whether landlords and agents should continue to be permitted to hold tenant deposit funds directly. 

However, The Letting Partnership believes the discussion extends beyond questions of trust and into the issue of transparency.

Unlike custodial schemes, where deposits are held by an independent third party, insured schemes allow landlords and agents to retain tenant funds within their own accounts while paying a fee to protect the deposit through an approved scheme. 

While schemes know which deposits have been registered and underwriters know which liabilities they have agreed to insure, there is no single independent view of the cash held across the market at any given time.

The timing of the government’s intervention is also notable. Data from the tenancy deposit sector suggests that the long-term shift towards custodial protection had largely stabilised, with custodial schemes accounting for around 54% of the market and insured schemes continuing to represent a substantial proportion of deposit protection activity. 

Rather than accelerating an ongoing migration, the proposed reforms would introduce a structural change to a market that had reached a relatively stable balance between the two models.

Should the proposals become law, a gradual transition is widely expected. 

New tenancies could enter custodial protection while existing insured deposits remain protected until tenancies naturally conclude, creating a period where many agents may need to manage both systems simultaneously.