Thousands of current tenants could be set for a refund of their deposit in a landmark move.
haart signed up to deposit replacement provider flatfair in April 2018.
The agent has already signed up 2,000 tenants to the scheme, but is now offering to refund deposits to any of its 16,000 existing tenants who switch.
This could result in more than £20m of deposit money being returned. It would be the largest return of deposits on record, and could mean that tenants would see hundred of pounds back in their bank accounts: the average tenancy deposit across the UK is £1,407.
The returned money will not include any interest earned by the agent while the deposit was being held, haart said.
While tenants would get back their original deposits in full, they would have to sign up to flatfair’s alternative arrangement by which they would have to pay the non-refundable equivalent of a week’s rent. They would also still be financially liable for any costs at the end of the tenancy, such as damages or cleaning.
Haart operations director Paul Sloan told EYE that landlords would be contacted first to see if they would agree to the switch and their tenants would then also have to give their approval.
They would still have the option of continuing with their existing traditional deposit arrangement.
He said the agent is anticipating a 20%-30% take-up rate, similar to the number of new tenancies that have opted for using flatfair rather than a traditional deposit.
Sloan said: “It has to be right for the individual tenant and landlord, so we are offering rather than pushing this.
“Landlords could effectively double their cover, while tenants won’t have as much of their cash locked away.”
He added that haart earns very little interest on the deposits, and as with other agents, will not be returning anything earned.
Sloan said: “The interest barely covers the bank charges and it is clearly not that significant to us as we will be getting a lot less if tenants start switching to flatfair.”
Under the proposition, tenants pay towards a ‘flatbond’ – a week’s worth of rent – before the tenancy starts. In return for this, landlords are covered for 12, rather than the usual six, weeks of rent.
Everything is managed on flatfair’s online portal, and as with a normal deposit, the tenant remains liable to pay for any damages costing up to the equivalent of six weeks of rent. The idea is that they are thus incentivised to behave responsibly.
Flatfair offers independent resolution by H F Resolution. If a tenant is found to owe money and fails to pay, landlords also get an option for flatfair to buy the debt from them so they are not out of pocket and the scheme then pursues the money itself.
Franz Doerr, chief executive of flatfair, said: “We all feel the financial strain after Christmas, which is why we’re pleased to be offering some light at the end of the tunnel.
“We hope to put millions of pounds that are pointlessly locked away back in the pockets of tenants across the UK, while providing landlords with the cover they need.”
Paul Smith, chief executive of Spicerhaart, said: “It’s more important to us than ever that we offer landlords the highest level of protection on the market and that’s exactly what flatfair provides, while benefiting tenants at the same time. It’s a win-win.”
Comments (19)
typical spicerhaart putting their best interests before their clients!
Some of the UKs leading agents are rolling out these no deposit schemes. Of course they are insurer backed and FCA regulated as starters and more importantly are entirely optional for the tenant. The scale of the roll outs would suggest that this will be a mainstream offering and within a few years it is likely that most agents will offer it.
Completely agree that agents need to read the small print and choose reputable suppliers.
Flatfair are not regulated by the FCA nor do they advertise who their insurer is!
Agent: we are looking to return your deposit
Tenant: great, my bank details are
Agent: but we will only return the deposit, if you pay us £250, plus you are still liable for all the breaches of the contract and will be chased by Flat Fair
Tenant: ohhh
I am not sure the conversation would really end like that Darrell
Licence to tenants to default with no risk and no commitment to behave. Actually you don’t need a deposit for good tenants, but are you happy you did for those that are not. Try and find a system that will identify the good from the bad…. it doesn’t’ exist!
We put together a “zero deposit” scheme back in 2012 for use by our Scottish offices as a way for them to earn introducer commission, at the time of the Scottish tenant fee ban. Some of our offices in England then took up the scheme on a trial basis. It was a disaster! The scheme was warranty backed, and when the company who provided the warranty went into administration our landlords were left high and dry. They had no deposit to fall back on and no-one to direct a warranty claim against. All they could do was look to recover losses through the courts against their tenant. In reality, our franchisees paid out many claims from their own pockets to pacify and retain good clients. Warranty backed schemes are not regulated by the FCA, but where there is an underwriter and the scheme is offered as an insurance product then my understanding is that it is a regulated sale. What I can never get my head around, is who should be taking taking the product advice about whether the insurance “meet the customers needs” as plainly the beneficiary of any claim is the landlord, but it’s the tenant who pays the premium. There are also some real shockers out there, which are neither warranty products nor insurance backed schemes. These work by the agent taking a monthly payment from the tenant in addition to the rent and paying into their own business bank account to meet future liabilities for rent arrears and damage claims. The payment at say £25 per month seems modest but over the average tenancy lifetime of 30-months the tenant will have paid in £750 and has nothing coming back to them and retain full liability for arrears and damage.
Hello,
Your experience is very useful, and I agree with several of your points.
The concept of renting a property is that cash flows from tenant to landlord to bank – rent covers the liability of the mortgage and the landlord retains the asset.
By comparison, 30 months of rent payments are far greater, however the tenant retains no equity in the property – yet this is accepted by design.
I think you’ll find most of these Zero Deposit schemes and similar actually use an insurance broker to allow for their ability to cover upto 12 weeks rent for as little as 1 week (that is not refundable like a normal deposit) The tenant is effectively taking out an insurance policy. Therefore, yes they are covered by the FCA.
Great for the tenant if they don’t physically have the full deposit upfront but that in itself should ring alarm bells for landlords!
The only reason this company are doing this is so they can make a huge amount of money very quickly as they will earn commissions based on every single policy taken out.
Shocking tactic to make a quick buck in my opinion.
Don’t be so anti-innovation! The idea is great but there are some cowboys out there. What scares me is the lack of research letting agents do before putting their clients at risk!
I think this is very short sighted by both parties and will end in disaster.
This is very different to a tenant being given the option at the beginning of a tenancy, when this type of assistance may help them move in quicker or fill the gap while they wait for their old deposit back. It doesn’t take too much mental agility to work out the ONLY tenants this will benefit are the ones in financial difficulty, or who have completely trashed the property and are planning to evade the eot charges, or tenants planning on moving back to their home country.
We don’t even like paying a cash machine £1.50 to get our own money, why on earth would someone who has already accounted for that money not being available to them for the duration of the tenancy pay hundreds? To give them a warm fuzzy feeling knowing it’s in their account? I don’t think so, that in itself would be a stunning display of financial incompetence and should ring alarm bells.
Yes, these services are re-insured in the background, but insurance companies are not in the game of giving away free money for a laugh. After a flurry exorbitant claims they will increase the price of the policy and this company may then find this an unprofitable service to continue offering, they may even fold. What happens then could get messy.
I should add, I think these types of scheme / service are fine if run properly with the correct safeguards in place.
Here’s hoping that all landlords have read agreed and signed new terms of business to reflect the change otherwise, when it goes wrong, the lawyers will have a field day!
Some of these firms are authorised by the FCA – some directly, others by ‘renting’ the authorisation of other authorised firms.
As per my comment on yesterday’s opinion piece/marketing effort, FCA authorisation does not prevent poorly designed products, or malicious/accidental harm to consumers.
Only time and the experiences of stakeholders exposes whether a problem exists. It would take industry barristers to determine whether the product in this form, with this distribution model is correct.
The pattern is for firms to make money quickly and legally – should problems arise, there is a shift to less savoury action to protect profitability. Finally, compensation claims and enforced redress reverse cash flow after the regulator takes a look and passes judgement.
Like the police and justice, regulators are part-deterrent and part-determiner of recourse. However like the police/justice, regulation can not prevent one coming to harm and should not be viewed as a sales featur of a product.
Reading the comments yesterday I thought it was clear that these sorts of outfits cannot actually be ‘regulated by the FCA’?
It’s madness that a big agency like Haart are doing this. Flatfair isn’t even regulated by the FCA, if it goes out of business your landlords are left completely exposed.
Reading their TC’s is well worth your time if you want a laugh, worrying that some agents have fallen for it though….
Are you saying that there is potential for loss??
Massively so, I don’t think they even have an insurer underwriting the whole thing. You are relying entirely on the solvency of their company, big risk on a startup.
There is one huge reason why they are offering to do this…..
They make a shed load of money!
They earn commissions for selling this option whereas they earn nothing at all from having £20m sat in deposit accounts.