More than one million landlords could transition to alternative deposit products if the Government proceeds with proposals to abolish insured tenancy deposit schemes, according to new research.
The Government has indicated it is considering ending insured deposits as part of wider reforms to the rental sector. Figures from the Tenancy Deposit Scheme suggest the changes could affect how more than 2.1 million tenancy deposits are currently held and managed.
Zero Deposit, an alternative deposit provider, surveyed 800 private landlords to assess how they would respond if insured tenancy deposit schemes were withdrawn. The research found that 9% of landlords would move directly to a deposit alternative product, which based on the Government’s estimate of 2.86 million private landlords, equates to approximately 266,736 landlords.
Tenant preferences could influence adoption
A further 26% of respondents indicated they would be guided by tenant preference when deciding how to replace insured tenancy deposits, representing a potential additional 755,751 landlords who may choose to offer deposit alternatives where tenants favour that option.
The survey also showed that 64% of landlords said they would transfer tenancy deposits into a traditional custodial tenancy deposit scheme. The findings come as property tribunal cases have risen 56% following rental reforms, indicating increasing complexity in the rental market.
Key considerations for landlords
When asked about choosing a scheme, 25% of landlords said the most important consideration would be securing robust protection against damage. Faster dispute resolution was cited by 17%, while regulatory certainty was important to 16%. Lower costs and reduced administration were each identified by 15% of respondents as important considerations. Tenant affordability influences 9% of landlords, while 3% identified cashflow as a deciding factor.
Sam Reynolds, Chief Executive of Zero Deposit, said: “These findings show landlords are approaching any potential changes to tenancy deposit legislation pragmatically. While many will naturally move to custodial schemes, there is also clear evidence that a significant proportion are open to alternative solutions, particularly where they offer greater flexibility for tenants.”
Reynolds added: “What’s becoming increasingly clear is that landlords aren’t looking for a single replacement for insured tenancy deposits. They’re looking for a broader toolkit of trusted solutions that help them manage risk, navigate regulatory change and meet the needs of an increasingly diverse tenant market.”
Market implications
The potential shift in deposit management comes at a time when the rental market faces multiple regulatory changes. The research suggests landlords are seeking solutions that balance risk management with tenant accessibility, particularly as landlords continue to invest in the rental sector despite regulatory pressures.
The Government has not yet confirmed a timeline for any changes to the current tenancy deposit scheme framework. The outcome of the proposals will determine whether the estimated one million landlords will need to adopt alternative approaches to managing tenant deposits.
