Why deposit replacement schemes are more important than ever

For many potential tenants, the biggest hurdle to securing a property isn't the rent, but the deposit.

The traditional cash deposit, capped at five weeks' rent if the yearly rent is worth less than £50,000, can leave some tenants scrambling to find over £1,000 on top of moving costs and other bills.

At a time when the cost of living continues to spiral upwards, this additional barrier can force tenants to borrow cash, delay their move, or even lose out on their new home altogether.

Traditional deposits can pose a problem for landlords and letting agents as well. The usual deposit can tie up tenant cash for years, while adding to agents' admin and compliance responsibilities.

As deposit handling errors carry fines of up to £5,000 and banning orders, the Private Rented Sector (PRS) is searching for a more innovative, reliable alternative. That's where deposit replacement schemes come in.

Platforms like Reposit and flatfair have pioneered a way to lower costs for tenants, reassure landlords, and open a new revenue stream for agents. Keep reading, and we'll break down how these deposit schemes will change the way the PRS does business. 

• What are deposit replacement schemes?
• Why are traditional deposits a problem? 
• How deposit replacement schemes work
• The impact of the Renters' Rights Bill
• Benefits for tenants, landlords, and letting agents 
• Conclusion

What are deposit replacement schemes?

Deposit replacement schemes, sometimes called deposit alternatives, are services that are designed to replace the traditional cash deposit at the beginning of the tenancy agreement. Instead of paying out a 5-week deposit, tenants pay a much smaller, non-refundable fee.

The nitty-gritty details of how this works in practice are slightly different from company to company. For example, flatfair charges tenants a one-off membership fee equal to 28% of their first month’s rent (plus VAT).

With Reposit, the fee is typically one week’s rent or 23% of the monthly rental price (no VAT). In both cases, tenants pay less and landlords enjoy enhanced protection with flatfair and Reposit protecting upwards of 60% more than traditional deposits.

These schemes cover exactly what a traditional deposit scheme would protect. This includes unpaid rent, fair wear and tear, and cleaning costs. Should a dispute arise, it'll be handled through independent adjudication, just as they are in government-backed deposit protection schemes.

Companies like Reposit and flatfair simplify the deposit process for agents and independent landlords. There’s no need to register deposits, issue prescribed information, or manage deposit repayments at the end of the tenancy. Their integration with Goodlord means that the onboarding process is fully digital, saving time for everyone involved.

Why are traditional deposits a problem?

For decades, traditional deposits have been part and parcel of residential tenancies, but are they still fit for purpose? Here are the issues key PRS stakeholders typically encounter:

A financial burden for tenants

Even with the abolition of excess fees with the Tenant Fees Act 2019, securing a property still puts a tremendous financial strain on tenants. Research from Reposit found that 40% of tenants borrow money or get into debt to afford the typically £1000+ deposit.

Once paid, that money is then locked away for the entire tenancy. According to Reposit, £5.3 billion sits in government-backed tenancy deposit schemes. While it sits there, this cash earns no interest and steadily loses real value through inflation.

Limited landlord protection

From the landlord's perspective, a lump sum deposit offers limited protection. Data from Reposit shows that costs arising from rent arrears and property damage (when it occurs) can often exceed five weeks’ rent in 17% of cases. With laws capping what can be held in cash, landlords may be left out of pocket.

Traditional deposits can also shut prospective tenants out of the PRS. This shrinks the tenant pool for landlords, limiting their potential renters. In some cases, this can extend an unwanted void period and interfere with the landlord’s cash flow.

Extra admin for agents

For agents, traditional deposits can turn into administrative headaches. Registering each tenant with a government-authorised tenancy deposit protection scheme, issuing prescribed information, and handling disputes all take time. Mishandling a deposit can also invalidate a possession proceeding, a risk that will only grow when Section 21 is abolished.

How deposit replacement schemes work

Whether you use flatfair or Reposit, deposit replacement services are designed to be as simple as possible. Instead of paying a large upfront deposit, tenants can simply choose the scheme that works best for them at the beginning of their tenancy and pay a much smaller fee.

Here’s how the process works

1. The tenant moves through the Goodlord Referencing process as directed. Once they’ve completed the process, they’re offered the choice between a traditional deposit or a deposit replacement scheme.
2. Instead of 5 weeks’ rent, they pay a one-off fee.
3. They move into their new home, keeping more cash available for other expenses like bills, furniture, or moving services.

Integrations with platforms like Goodlord mean tenants can see both cash deposits and replacement schemes side by side during referencing, and agents save time with digital onboarding.

The impact of the Renters' Rights Bill

The upcoming Renters' Rights Bill will be the biggest shake-up in the PRS for decades. While it doesn’t expressly legislate in favour of deposit replacement schemes, it will create conditions that make them an increasingly attractive option for tenants, landlords, and letting agents.

Section 21

As we mentioned above, the abolition of Section 21 evictions is a significant change. Landlords have used Section 21 to take repossession quickly and without hassle. In the past, errors in deposit handling could already invalidate a Section 21 notice.

Once Section 21 goes, agents will need to rely on Section 8 notices to evict tenants which must be processed by the courts. This means even small mistakes with deposits could further delay or derail eviction proceedings.

Rent in advance

Rent in advance is also set to be abolished as part of the Bill. Until now, it has been common practice for tenants to transfer their first month’s rent and their deposit together.

Under the new rules, this practice will be illegal, and otherwise law-abiding landlords and letting agents could find themselves accidentally in breach of the legislation. f

Reposit and flatfair only take one upfront fee, so there’s no chance of an accidental violation.

Pets in lets

The question of pets in lets has been hotly debated through the Bill's trudge through the Houses.

Initially, the government planned to allow landlords to require their tenants to buy pet damage insurance if they asked to bring a furry, feathered, or scaly friend into their rental.

The government then backtracked on that, fearing the potential costs to tenants. In place of this insurance, a deposit replacement scheme would cover 8 to 10 weeks of rent, which would more than cover any pet damage.

In all these cases, providers are proactively preparing for the Bill. flatfair is taking steps to strengthen its dispute resolution process and increase its transparency in its fees and coverage. Reposit, meanwhile, is looking to build a reputation as a compliance-backed option for agents that want to replace lost revenue from renewal fees.

Benefits for landlords, letting agents, and tenants

Tenancy deposit schemes, like the ones offered by Reposit and flatfair, offer real-world benefits. Tenants save money, landlords enjoy extra protection, and agents have their admin slashed and earn a commission.

Reposit and flatfair have provided a few testimonials from tenants, landlords, and agents that highlight the usefulness of these services. 

For tenants

• Sarah, a first-time renter with flatfair, was relocating for her first job but didn’t have enough savings to cover both a deposit and moving costs. By choosing flatfair, she paid a small membership fee, moved in quickly, and kept her savings for furniture and bills.
• JB, a Reposit tenant, described the relief of avoiding “8 weeks’ rent upfront, followed by full rent immediately, while dealing with other costs of moving.” He said the scheme “prevented me from wasting thousands.”

For landlords

• James, a portfolio landlord using flatfair, was initially hesitant but found that void periods were reduced because more tenants could afford his properties upfront.
• Gail Parkinson, a landlord with seven properties using Reposit, praised the “added layer of security” with eight weeks of cover. After using Reposit’s dispute process, she found it “very smooth” and said funds were received quickly.
• Similarly, Andy Taiwo, a landlord with properties in Manchester and Bradford, noted that when a tenant failed to pay rent, Reposit reimbursed him the full amount owed within days. In contrast, with a previous cash deposit, he lost £1,500 in rent and only redeemed £60.

For agents

• Samuel Fitz-Hugh, co-founder of Settio Property Experience, said Reposit was “a breath of fresh air,” making it easier to return money to landlords quickly, pay contractors, and avoid void periods. He highlighted FCA regulation as essential for client confidence.
• Emily, a lettings negotiator with flatfair, noticed deals were falling through when tenants struggled with upfront costs. By offering flatfair via Goodlord, her branch saw higher conversion rates and happier tenants. She also found deposit alternatives made her agency stand out as forward-thinking.
• Jason Treadwell, Group MD at Newton Fallowell, added that Reposit "offers greater flexibility for both tenants and landlords" and removes the need to request extra deposit money after rent reviews, all while earning agents' commission. 

Conclusion 

Traditional cash deposits tie up billions of pounds across the private rental sector, leaving tenants under financial pressure, landlords under-protected, and agents weighed down by compliance risks. With the Renters’ Rights Bill set to increase the stakes around deposit handling, the shortcomings of the old system are more evident than ever.

Deposit replacement schemes offered by flatfair and Reposit provide a timely solution. Tenants like Sarah and JB have shown how they remove the biggest upfront barrier to moving, freeing up cash for essentials and preventing debt. Landlords like James, Gail, and Andy are seeing stronger protection, quicker reimbursements, and fewer voids. And agents such as Emily, Samuel, and Jason are finding that deposit alternatives save time, reduce compliance burdens, and enhance their appeal to both landlords and tenants.

With seamless integrations through platforms like Goodlord, deposit replacement schemes are easier than ever to adopt, helping agents offer more choice while reducing admin.

In short, deposit replacement schemes are becoming an essential tool for a modern, flexible rental market. They reflect the realities of today’s economy, respond to the demands of upcoming legislation, and create a fairer, more efficient system for everyone involved.