Nil deposit scheme for renting, is it safe/worth it?

emmao765

My partner and I are in the process of finalising an application for a flat and through Let Alliance our letting agency has given us the option of a nil deposit scheme, x amount paid up front rather than a deposit of 5 weeks rent which we would get back at the end.

Not having to part ways with 5 weeks of rent for our tenancy seems like the best option for us, but I am cautious about this as I've only ever had to pay deposits and have never been offered this before. Does anyone know if the nil deposit scheme is a good idea and safe?

Only caveat is that we have to take out contents insurance with Let Alliance to be able to do this, however, I was intending on getting contents insurance already but worried they're just trying to suck money out of us?

HobgoblinBT

You seem to be in a good position to be able to consider this as an option or pay the deposit in full. 

From a tenants perspective I would not like the bundling of contents insurance as it takes away your choice and may cost you more for contents insurance,  but for a tenant that may may be stretched to fund the deposit it would fit the need.  

From the other side, as a landlord, I am not be keen on the scheme.  If a prospective tenant doesn’t have the savings for a deposit I would question their ability to meet the monthly rent.

steampowered

It's a bad idea. 

What you are actually doing with these schemes is buying an insurance policy for the landlord, which you pay for monthly through increased rent.

Over the course of the tenancy, you will pay increased rent to cover the cost of the insurance policy, the commission taken by the scheme provider, and the commission paid by the scheme provider to the estate agent. You don't get that money back.

In addition, if the landlord does make a claim for damage/cleaning, the insurance company will pay the landlord and pursue you for reimbursement. You have less control than where you pay a traditional deposit held by a deposit protection scheme.

If you don't have enough money to pay the deposit up front, you should consider taking out a loan for the deposit and repaying it monthly during the course of the tenancy. The interest you pay on the loan will be cheaper than using one of these schemes.

https://www.mccartanlettings.co.uk/blogs/zero-deposit-pros-cons/

https://www.makeurmove.co.uk/article/2047/Depositfree_Renting_How_It_Works__What_To_Be_Aware_Of

GDB2222

So, the money you pay now as a fee is eaten up by the scheme? You don’t get it back. 

And, if there’s any damage, the scheme will pay the landlord but come after you for the amount that they pay out? So, in effect, you pay twice over?

And, if the tenancy continues past the initial term, do you have to pay a fee again?

The only advantage for you is that you don’t have 5 weeks rent tied up on deposit.  But it’s actually more costly, as you pay the fee plus the damage cost.

moneysavinghero

Nil deposit schemes tend to be a way for EA's to get around the prohibited payments law. They get to make a few extra £££ for every mug they convince to sign up for the scheme.

If you can afford the deposit then just pay the deposit up front as you have always done.

emmao765

Thanks everyone for commenting! Definitely going down the normal deposit route.. did think this was too good to be true