Deposit-alternative tenancies benefit tenants and landlords while providing a unique selling point for letting agents. But how can agents pitch the scheme to landlords?
Deposit-alternative tenancies offer letting agents a way to reduce tenants' upfront costs while still protecting landlords against rent arrears and property damage.
In the UK, the typical deposit is equivalent to five weeks' rent. As of July 2024, with the average rent in England at £1,470, the average deposit is approximately £1,837.50. For many tenants, this upfront cost is significant and can be a financial strain.
With inflation rising and average rent arrears claims reaching £2,092, letting agents must explore alternatives to high upfront costs while ensuring landlords' interests are safeguarded. One increasingly popular solution is deposit-alternative tenancies, but without a clear understanding, this approach might seem risky.
Read our guide to learn how deposit-alternative tenancies could benefit your agency:
- What is a deposit-alternative tenancy?
- How do deposit-alternative tenancies work?
- Who benefits from deposit-alternative tenancies?
- When can deposit-alternative schemes be used?
- How do tenants apply for deposit alternative tenancies?
- How to discuss deposit-alternative tenancies with your landlords
What is a deposit-alternative tenancy?
A deposit-alternative tenancy, also known as a deposit replacement or deposit alternative, allows letting agents to offer an alternative solution for securing a rental property.
Instead of a tenant paying five weeks' rent as a deposit, companies like Reposit require only one week's rent. However, tenants remain fully liable for any end-of-tenancy charges.
This does not mean landlords are left unprotected; if there are any charges at the end of the tenancy - whether for cleaning, property damage, or rent arrears - letting agents will register the charges to the tenant through the Reposit platform once the tenancy is completed.
How do deposit-alternative tenancies work?
Tenants must pay one week's rent upfront. For instance, if the average rent in the UK is £1,470, a tenant would need to pay £339.23 under a deposit-alternative scheme, saving £1,356 when compared to a 5-week cash deposit.
Unlike traditional deposits, where tenants receive their deposit back at the end of the tenancy, deposit-alternative schemes retain the upfront payment after the tenancy concludes.
With Reposit, landlords are covered for eight weeks of rent, despite the tenant only providing one. So, if a landlord charges the average rent, they are covered for £2,713.84 - over £1,000 more than they are covered with a 5-week cash deposit - which can be used in cases of rent arrears or property damage.
Letting agents working with Goodlord can offer their landlords a deposit-alternative tenancy through Reposit.
Who benefits from deposit-alternative tenancies?
Both letting agents and landlords can benefit from deposit-alternative schemes.
For letting agents, these schemes provide an additional revenue stream during the move-in process and at the end of tenancy, save over an hour in admin time when compared to cash deposits.
Companies like Reposit protect landlords, giving agents a unique selling point to both landlords and tenants while maintaining confidence in the scheme.
Disputes and payouts are also handled quickly, with independent adjudicators resolving disputes in 14 days and landlords receiving payouts in less than 20 days, on average.
Offering a deposit of just one week's rent can also reduce void periods. In July, the average void period was 11 days. By lowering the upfront cost, tenancies may have shorter void periods as more tenants can afford to move in.
For landlords, deposit-alternative tenancies do not compromise protection. Even though tenants only need to pay one week's rent upfront, deposit schemes can cover up to eight weeks' rent, offering greater security than the standard five-week deposit. Reposit’s cover is also insurance backed and they’re authorised and regulated by the FCA.
When can deposit-alternative schemes be used?
Once a letting agent has found a suitable tenant, they can choose to use a deposit-alternative scheme to secure the property.
Platforms like Reposit also allow letting agents to switch from five-week cash deposits to one week's rent during the tenancy.
With Reposit Switch, tenants can join the scheme mid-tenancy or at renewal. They will receive their cash deposit back, and landlords can increase their protection from five weeks' rent to eight. When using Reposit Switch at renewal, agents also provide their landlord with 8 weeks of cover at the renewed rental amount.
However, tenants must be eligible for a deposit-alternative scheme, whether before signing the tenancy agreement or mid-tenancy. If a tenant does not pass the referencing checks, they will not be eligible for deposit-alternative schemes.
🏠 Download our guide to help agents discuss deposit-alternative tenancies with their landlords 🏠
How do tenants apply for deposit alternative tenancies?
Deposit alternative schemes offer tenants the option to pay the equivalent of one week’s rent instead of the traditional five weeks' deposit. However, to qualify for such a scheme, tenants must first pass a series of thorough checks.
As with any deposit scheme, whether traditional or alternative, tenants must undergo referencing checks to verify their identity and confirm they can afford the rent.
Even when tenants opt to pay a week’s rent as a deposit, letting agents and landlords are still protected from the risk of rent arrears.
Goodlord’s integration with Reposit ensures that tenants can complete the required referencing checks before signing their tenancy agreement and being approved for a deposit alternative scheme.
Offering an alternative deposit option not only protects landlords but also broadens the appeal to prospective tenants who may struggle to pay a traditional five-week deposit upfront.
Tenants should be offered the option of using an alternative deposit scheme. However, landlords and letting agents can remain confident that the tenant will be a suitable match for the property, even when using an alternative scheme.
How to discuss deposit-alternative tenancies with your landlords
If letting agents need support in discussing deposit-alternative tenancy schemes with their landlords, they can download our talk track info sheet.
