Replace rental deposits with an insurance system, report says

A new report from the Centre for Policy Studies has found the average renter loses over £300 per tenancy due to lost interest and inflation because of participation in the existing deposit protection schemes.

The report says forcing tenants to pay large up-front deposits means many people struggle to move between properties.

They also lose out on accruing interest on their money which instead is retained by their landlord or letting agency, and often face a real struggle to receive their money back.

Polling by YouGov has shown that 43% of renters would support a system of deposit replacement insurance with a small cost rather than the current system of tenants paying large upfront deposits.

‘Down With Deposits: The Case for Rental Insurance’, proposes that the Government should introduce an insurance system as an alternative to deposits which would allow renters to insure against potential damage or missed rent payments without having to find a large up-front lump sum, estimated to average around £1,041.

The report adds that these insurance schemes could easily be developed within the existing insurance market, and would enable renters to ‘retain more of their own money when moving into a property, enjoy the interest accruing during their tenancy, and avoid borrowing from friends, family, or pay-day lenders to gather enough funds for a deposit.’

Brian Sturgess, author of the report said: ‘Currently many people are simply unable to enter the rental market due to the need for a large upfront deposit to be provided before they move in.

‘The proposals in this report offer a solution to the inherent unfairness of renters losing out on the interest they would have accrued on such a deposit, and often having to struggle to get their money back at all.’

An insurance-based model would also allow renters to build up a reputation as a good tenant through a ratings system similar to no-claims bonuses for motor insurance, while landlords still received protection against property damage and missed rental payments.

The YouGov polling showed that tenants would prefer, by 43% to 41%, an insurance scheme to the current deposit system.

Robert Colvile, Director of the Centre for Policy Studies, said: ‘This Government have a real opportunity to rectify the damage done by Labour to the rental market.

‘By endorsing an insurance-based model as an alternative to a rental deposit, the Government would rectify an unfair system which polling shows is unpopular with hard-pressed tenants.’

The polling was commissioned by Zero Deposit, which offers a deposit replacement scheme, but the report and its recommendations were produced independently by Brian Sturgess and the CPS, with no external funding.

Read the report here.