Property Natter – why deposit protection schemes matter

This week, as the title suggests, I turn my attentions to the world of deposit protection schemes.

Landlords have been legally obliged to place tenants' deposits in a tenancy deposit protection scheme since 2007.

There are three government-backed deposit schemes in England and Wales – the Deposit Protection Service (DPS), mydeposits and the Tenancy Deposit Scheme (TDS).

Separate tenancy deposit protection schemes exist in Scotland and Northern Ireland, but the legal requirement for landlords and letting agents to protect their tenants’ deposits with a government scheme is the same.

After very recent changes, all three deposit protection schemes now offer both insurance-backed and custodial options.

Custodial schemes are free but the schemes take receipt of the funds, whereas insurance-backed schemes enable landlords or their letting agents to keep the funds themselves in exchange for a small insurance fee.

Both have their pros and cons, but since 2007 the speed and efficiency of all the deposit protection schemes have become that much greater as an industry quality standard has been achieved.

With deposit protection now such an important (not to mention legal) requirement, I thought it would be a good idea to catch up with representatives of the three schemes for a quick Q & A.  

Do you agree with the criticism that it takes longer for deposits held with custodial schemes to be returned to tenants?

Eddie Hooker, CEO of mydeposits: Any delays associated with custodial deposit protection needs to consider the deposit release process at the end of tenancy. The scheme simply has to ensure each party is happy for the deposit to be returned and that can take a bit of time.

The ultimate challenge is for the deposit schemes to have the systems in place to return the deposit as quickly as possible. However, there’s more to it than just that. The tenant plays a key role in speeding up the process so good, clear communication between the scheme, landlord or agent and the tenant is absolutely vital. That’s what mydeposits custodial will be focusing on - accessibility and ease of use.

Steve Harriott, CEO of the Tenancy Deposit Scheme:  With TDS Custodial, we have invested heavily in technology to speed up the repayment process, but of course there may be some instances where a landlord or agent is able to return the deposit more quickly. As soon as both parties notify us of their agreement, we make payment within two working days.

Julian Foster, Managing Director of the Deposit Protection Service: It’s difficult to make a direct comparison. We aim to repay all deposits within two business days once both parties have come to an agreement. When landlords or agents use insured schemes, they keep hold of the money throughout the tenancy, meaning it’s already in their hands when it comes to an end. However, if there is a dispute, insured schemes can take longer, as there is an extra initial step when agents and landlords have to transfer the deposit to us.

There are now three providers offering both insurance-backed and custodial schemes, how do you feel this will benefit the rental market?

Eddie Hooker: It’s common in most areas of business that competition should help drive up service and will mean that the schemes must differentiate to attract new, and retain, current landlord and agent members. Custodial schemes are all completely free to use, so pricing isn’t an issue, therefore customer service and ease of use become most important, which is of huge benefit to the all landlords, agents and tenants in the rental market

Steve Harriott: Choice and competition is a good thing and inevitably results in a better service for customers. Landlords and letting agents have never had a choice of custodial scheme until now and we are confident that our new system will be welcomed by the industry.

Julian Foster: As a company we embrace competition wholeheartedly. We believe it drives innovation, improves customer service standards and helps increase efficiency within an industry. Our overriding focus as an organisation is our customers, and competition can only help to improve the experiences of landlords, letting agents and tenants.

How do you gauge tenant awareness of deposit protection? Do you think more can be done to educate tenants?

Eddie Hooker: Working with our partners, the National Landlords Association, we regularly conduct tenant surveys that measure engagement and awareness of deposit protection. Our last survey found that over 80% of tenants were aware of deposit protection, a rise from 70% in the last two years. It’s important that we continue to raise awareness amongst tenants.

Steve Harriott: We believe this has improved over the years and tenants are more used to their deposit being protected, particularly if they have rented multiple times. We work hard to raise awareness with tenant organisations such as NUS and Unipol, but ultimately it is the landlord who is responsible for protecting the deposit and work must continue in this area too.

Julian Foster: We do everything we can to broaden tenants’ understanding of deposit protection, as well as educating them about their obligations as a tenant. We emphasise not just how deposit protection works, but also what’s required of them and how they can enjoy a good relationship with their landlords and agents and ensure that their tenancies are problem free.

In your experience, what is the most common problem letting agents have with deposit protection?

Eddie Hooker: The less administration and resource that the agent has to dedicate to deposit protection tasks, the more time the staff have to focus on running their business. Dealing with deposit disputes, and also managing the expectations of landlord clients on problematic issues such as fair wear and tear can all cause problems, which is why we place importance on providing workshops and literature to help agents train their staff and manage client expectations.

Steve Harriott: Probably persuading their landlords to accept their recommendations when the tenancy ends. Through our TDS Academy training, agents demonstrate a sound understanding of matters such as betterment and wear and tear, but this can often be difficult to convey in financial terms to landlords.

Julian Foster: The most common reason landlords or letting agents claim part of the deposit is to compensate for damage to the property, with cleaning and redecoration coming close behind. It’s worth remembering that only around 2% of tenancy deposits end in a dispute, but when they do, we support both parties throughout the process and make sure everyone is treated fairly.

What does the future hold for deposit protection? As we near the 10-year anniversary of mandatory protection, what can be done to improve the process?

Eddie Hooker: We want to keep pushing forward and evolving our service. New, faster ways of working and communicating are appearing all the time. Our aim is to work with different businesses and services in the sector to ensure deposit protection can be integrated and thus reducing duplication and effort.

Steve Harriott: Deposit protection has, despite some critics, established itself as a small but important part of the agent, landlord and tenant tenancy cycle. The key for the future will be for providers like TDS to continue to build on the improvements made for both parties, to make it as streamlined as possible. Adopting the approach of the regulations in Northern Ireland and Scotland, where use of the ADR process is mandatory on the landlord, would be something worth considering to improve the experience of tenants in the sector.

Julian Foster: With the rental sector expanding and evolving, the next ten years will be defined by greater and greater cooperation. We were delighted that the government renewed our contract to protect deposits, and their trust in us reflected our commitment to play a leading role within the industry, focusing on rapid deposit repayment; clear, regular communication with landlords and tenants; and the provision of the best support for our customers, whether that be online, over the phone or in person.

Excellent answers there, showing how deposit protection schemes are a small but vital cog in the property industry’s well-oiled machine. Until next time…

*Nat Daniels is the Chief Executive Officer of Angels Media, publishers of Estate Agent Today and Letting Agent Today