Could Tenants’ Deposits Be Replaced By Insurance-Based Alternatives?

Reviews

Whilst attention has been focused on the house-building crisis in the UK and the affordability of mortgages, the rental sector could be moving towards a major change.

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A recent survey suggests that 43% of renters would support a move away from upfront deposits on lease agreements to an insurance-based scheme.

Currently, landlords are obliged to place any deposits they receive into a tenancy deposit protection scheme, but the recent report from the Centre for Policy Studies (CPS) suggests the average renter can lose up to £300 due to inflation and lost interest over the period of a tenancy. With deposits averaging over £1,000, tenants often have difficulty moving between properties, impacting on the market.

Reputation

The CPS report says such insurance schemes, placing the responsibility for premiums on the landlord or the tenant, could be provided within the existing insurance market. The theory is that renters would build up a reputation as a good tenant over time and the owner of the property would still receive protection. Tenants surveyed, however, were almost evenly split on the efficacy of such schemes.

According to the National Landlords Association, this may be because the majority of tenants currently have their deposits returned in full under the existing arrangements. The organisation points out that while a smaller payment for a policy may help the tenant, it could be expensive in the long term for those who fulfil their obligations under their tenancy agreement – they would otherwise have had their deposit returned in full.

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Subrogation

Investors and developers will often use a company specialising in property management Cheltenham – it’s a typical town with average rentals of just over £1,000 per month. There are many local companies offering these services, such as those provided at https://www.completepropertygroup.co.uk/.

Deposit-free policies are already on the market with premiums paid by landlords or letting agents and, in some cases, tenants.

In both cases it is important to read the small print. When a claim is made under the policy, insurers may use something called “subrogation”. This allows them to take action against the tenant if the landlord makes a claim on the insurance policy. In any event the policy is unlikely to cover damage to the property or unpaid rent at the end of the tenancy.

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