Deposit/Bond – Paper Guarantees?

Reply to the comment left by AA at 12/11/2018 - 17:30
Might it be possible to avoid complication if the landlord frames it as: "if you pay 6 weeks deposit, rent = £x; if you pay no deposit, rent = £y", and leave it at that? What the landlord does with the rent after that is their business.

If I've understood correctly, the description given above sounds to me more like an insurance policy than a guarantee scheme. The landlord pays a monthly premium, and they can claim against that policy when the tenant leaves.

There are a few questions here, e.g: What are the criteria for a claim? How do you prevent abuse of the system, and in the event of a dispute, who adjudicates?

No kind of deposit scheme is needed here. Assuming you’re happy to take on a tenant who hasn’t the money to pay a deposit, forget about the deposit and just charge £515 rent rather than £500. Landlord keeps the extra £15 rent. No paperwork, no admin work paying £15 into a deposit scheme each month. Simples.

Reply to the comment left by Luke P at 13/11/2018 - 08:52
Hi Luke

I think the point that you and AA make about such a scheme potentially being a disincentive for tenants to look after the property is a valid point, and just the sort of issue that needs to be addressed. I don't let quite as many properties as you do, but I think we have similar tenants, i.e. those on benefits and/or a low income, and I suppose to a large extent it is this category of tenant that is less likely to have a deposit, and yet the landlord needs some form of protection against losses caused by rent arrears or damage. However, what I have found is that it makes very little difference to the behaviour of a tenant whether they have paid a deposit or not, so some will cause damage or have rent arrears regardless of whether they have paid a deposit , and some will look after the property and try really hard to pay the rent, again regardless of whether they've paid a deposit or not.

Those tenants that care about their properties and paying their rent, will also care about leaving on good terms with the landlord and getting a good landlord reference. Those that don't care, just won't care regardless of having paid a deposit or not.

Therefore, how can the good tenants (but with no deposit) access accommodation from good landlords, who understandably want the protection afforded to them by having a deposit (or a deposit guarantee)? - This is the conundrum that I am trying to find a solution to., because no matter how much Larry at the Landlord Alliance tries to get Shelter to act as rent guarantors, this is not really going to happen, so if landlords are to be given some protection from defaulting tenants, then someone has to come up with something that is not currently available from anywhere else.

The Choice Deposits idea is a bit like Rent Guarantee Insurance, but made available to all landlords regardless of the type of tenants they have.

Reply to the comment left by Luke P at 13/11/2018 - 08:53
This is what I am hoping to be able to do, though I'm not there with it yet.

How can this be done for just £15 pcm? - This is clearly an issue that I would need to address, but it is partly down to the average duration of a PRS tenancy, which I believe is around 4 years, so at £15pcm that could be £720 (over a 4 year period) received to cover a maximum potential liability of £500. - but of course this is still very risky for the organisation providing that deposit guarantee, so I have a few other ideas of how to offset some of that risk, which if I can pull them all together, may make this deposit guarantee scheme a viable proposal.

Reply to the comment left by Rennie at 13/11/2018 - 10:58
Thanks Rennie, opening up the conversation is exactly what's required, because every landlord has a different experience and may be able to identify problems with the idea, or may be able to identify possible solutions or tweaks to improve the idea.

Reply to the comment left by Jon Landlord at 13/11/2018 - 11:07
Thanks Jon Landlord,
I see no issue with a landlord framing the wording in that way, though I don't actually think it is necessary to do so, though if it is done like that then it may be better to do it the other way around, e.g. "the rent is £x amount, but if you wish to pay a deposit then I will give you a discount of £x amount pcm".

Yes, a deposit guarantee is basically very similar to Rent Guarantee Insurance (RGI), but on the basis that it would be available to landlords with low income or benefit tenants.

Your questions: "What are the criteria for a claim? How do you prevent abuse of the system, and in the event of a dispute, who adjudicates?" have yet to be addressed, as at this stage I am just exploring the idea and whether it would be something of interest to landlords and tenants. However, it should not be too difficult to come up with a list of criteria to be met in the event of a claim, and I suspect it would be similar to how an insurance company would determine the validity of a claim.

Reply to the comment left by Dylan Morris at 13/11/2018 - 12:46
Hi Dylan

I agree entirely, if a landlord wants to just charge a higher rent and set aside the extra rent money to cover eventualities, e.g. tenant damage, then they are free to do this and no deposit guarantee is required. - However, if they do this then they would not have £500 worth of cover for tenant damage/rent arrears, they would only have the accumulated number of months x the £15, so if the tenant left after 12 months owing £500 then the landlord would have lost a lot of money, whereas if he had paid the £15pcm to Choice Deposits then he could have up to £500 so would have reduced his potential loss.

Reply to the comment left by Robert Mellors at 13/11/2018 - 18:57
I should, perhaps, mention I do not take deposits and have not done so since 2006/7. I only require a homeowner guarantor. Despite operating in one of the UK’s poorest areas, I have very rarely had someone walk away from a property they wanted because they couldn’t find a guarantor. It means they can move in for very little and as the guarantor is usually a relative, they often end up doing much of the arrears-chasing should they arise.

Reply to the comment left by Robert Mellors at 13/11/2018 - 19:33
Sorry Rob I don’t understand. If the tenant left after 12 months the landlord would have £180 extra rent. Likewise if the extra £15pm had been paid to Choice Deposits landlord would receive £180. How could the landlord have up to £500 from Choice Deposits ?

Reply to the comment left by Dylan Morris at 13/11/2018 - 23:21
Because the deposit guarantee would be for £500, whether claimed on after 12 months or after 20 years, it makes no difference to the landlord, the maximum payable would be the value of the deposit guarantee.

For example, Think of it like your car insurance, the maximum claim on your car insurance for damage to your car (or theft of your car) is X amount regardless of whether you claim after 6 months or after 20 years of paying your premium and never having claimed. So long as the claim is valid, then the car insurance company would pay out up to X amount (the amount the car is insured for).

The deposit guarantee would work in a similar way, you decide how much protection you wish to pay for, e.g. £500 at the cost of £15 pcm, and in the event of a valid claim you get up to £500. There would be no advantage to evicting a good tenant in order to claim the £500 as you would have to prove the loss (damage or rent arrears), and you would have lost a good tenant, but it would provide £500 worth of protection if you had a bad tenant that caused you that level of loss.