United Kingdom

Zero deposit schemes under the microscope, says CMA

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The Competition and Markets Authority (CMA) has launched an investigation into zero deposit schemes, amid concerns that they are being mis-sold by agents.

The CMA is concerned that tenants and landlords do not properly understand how the products work. Tenants who use a zero deposit scheme do not pay a large deposit up front, but instead pay smaller non-refundable fees at the start of and during the tenancy. At the end of the tenancy, the landlord can also claim costs from the tenant for unpaid rent, cleaning or damage – the tenant’s payments do not cover this.

Tenants may also have to pay a fee for arbitration if they dispute the landlord’s charges at the end of the tenancy, and landlords face a lower burden of proof for having their charges approved. But tenants who sign up for these schemes don’t always understand this.

Ending high pressure sales

By choosing a zero deposit scheme, tenants avoid having to pay up to five weeks’ rent at the start of a tenancy – an average of £1,434, according to deposit alternative supplier Zero Deposit.

But the big push has come from letting agents. Agents can earn referral fees when tenants sign up to a deposit replacement product, and since the introduction of the Tenant Fees Act these fees have been an important source of income.

Newspapers have previously reported that agents are illegally pressuring tenants to sign up for zero deposit schemes by implying that it is a condition of securing the tenancy – and when finding a suitable rental property is so difficult to begin with, applicants may not be willing to challenge agents on this. Agents have also been ordered to pay compensation by redress schemes for failing to explain fee structures properly and not letting tenants switch to a traditional deposit.

The CMA now plans to write new guidance for letting agents setting out their obligations when it comes to selling zero deposit products. This has been welcomed by some zero deposit scheme providers, like Sam Reynolds, Chief Executive of Zero Deposit, who has called for the urgent creation of a code of conduct for the industry. Once guidance is in place, agents will have to be careful with how they explain tenants’ deposit options.

Zero deposit schemes aren’t the only rental sector issue being investigated. The CMA is also looking into requirements for rent guarantors due to concerns that they disadvantage tenants from less well-off backgrounds, as these tenants may have to pay large amounts of rent up front instead.

Other letting agent headlines

Letting agencies warned over ‘illegal and outrageous’ deposit deductions – LandlordZONE

More business for agents as landlords avoid blizzard of red tape – claim – Letting Agent Today

Self-employed estate agents to be trained in Jiu-Jitsu – Property Industry Eye

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