Zero deposit scheme: Your questions answered

Woman and children on a bed surrounded by moving boxes

Are you a tenant looking for an easy and cheap way to secure a rental? Or perhaps you’re a landlord pondering the best way to safeguard your property and income if your tenant causes problems. Either way, we’ll answer your most pressing questions regarding the zero deposit scheme so that you can move forward with confidence.

Do renters have to pay a deposit?

Renters moving into a new property usually have to pay a deposit. However, the legal limit for rental deposits changed back in June 2019 with the introduction of the Tenant Fees Act. Since then, zero deposit schemes have become a popular alternative. Why? Because although tenants still have to pay a deposit to secure their new home, it has been capped at five weeks’ rent. Zero deposit schemes, in contrast, guarantee landlords the equivalent of six to twelve weeks’ rent.

What is a zero deposit scheme?

A zero deposit scheme is a way of renting a new home without paying a hefty upfront deposit. Instead of paying 5 weeks’ rent upfront, a new renter can pay a non-refundable fee equivalent to just one week’s rent. If you intend to share the property with other tenants, you can split this fee between you. This fee is paid to a zero deposit scheme provider, who then guarantees the landlord that they will pay any money due to them (up to a maximum value of 12 weeks’ rent) if the rent goes unpaid or if the property is damaged. This means that the landlord is covered against losses, but the renter doesn’t have to provide a large cash deposit to rent the property.

How do I qualify for a zero deposit?

As long as you or your guarantor pass the usual referencing checks, any tenant is eligible to rent homes covered by a zero deposit scheme. This may be good news for those on lower incomes who can’t afford a large upfront deposit. However, you’ll need to rent through an estate agent registered with the scheme through a third-party service such as Zero Deposit™️. This may limit your options in terms of properties. It’s also worth noting that if you’re lodging with the landlord, or renting as a company, you probably won’t be eligible.

Asian couple eating Chinese food surrounded by moving boxes
A zero deposit scheme may help those on a lower income afford essentials for their new home.

Do you get a zero deposit back?

If you pay a zero deposit scheme fee, you won’t get any money back. Even if you’ve left the property in perfect condition and paid all rent on time, the fee is still non-fundable. The traditional method of paying a deposit involves the landlord keeping your money safe in a protection scheme. Your deposit is returned when the tenancy ends if you don’t owe the landlord anything. This is not the case with zero deposit schemes; the fee is paid upfront and not refunded.

Is a zero deposit scheme safe?

Zero deposit schemes from reputable providers are safe in the sense that both landlords and renters know what they are getting. Landlords get the protection of up to 12 weeks’ rent if anything goes wrong; renters get a potentially faster way to rent the property at a lower cost of entry.

If either party disputes the claim, an impartial disputes service such as TDS will step in to review the case. If the judgement falls in favour of the landlord and the tenant doesn’t pay up, they can expect a visit from a debt collection agency. Some schemes may also charge the tenant for requesting their case to be reviewed.

Is a zero deposit scheme better for landlords than a traditional deposit?

Zero deposit schemes offer several advantages to landlords versus a traditional upfront deposit. They cover landlords for claims of up to 12 weeks’ worth of rent, whereas the maximum upfront rental deposit you can ask for is only 5 weeks’ rent. This makes it easier to foot the bill if anything goes wrong.

Secondly, there is no deposit to register and protect via a tenancy deposit protection scheme. That’s one less thing for landlords to worry about.

Finally, zero deposit schemes can help landlords reduce turnaround times for new tenancies, by widening the pool of potential tenants. This reduces “void periods” where their property remains empty.

Are zero deposit schemes fair to tenants?

While tenants are the ones who pay the fee, zero deposit schemes provide them with a form of protection. When paying a large deposit upfront, many tenants worry whether they will get some or all of it back when the tenancy ends. Unfair or unscrupulous landlords may choose to find ways to keep hold of as much of the deposit as possible, leaving tenants out of pocket.

Zero deposit schemes allow tenants to avoid worrying about such potential disputes when their tenancy ends. If the provider is honest and the fee is clear-cut, this can make the process of renting a new property simpler, easier and fairer.

2024 update: Zero deposit schemes were in the spotlight in late 2023 and again in early 2024. The Competition and Markets Authority (CMA)  has been investigating the private rental market for violations regarding tenants’ rights. The CMA says that it continues to find numerous complaints about landlords who do not properly communicate the costs of having a zero deposit scheme in place. For example, they might fail to explain that there is an annual or even monthly renewable fee involved.

Tenants should carefully consider the pros and cons of a zero deposit scheme before signing a tenancy agreement.

What are the advantages of a zero deposit scheme for tenants?

A zero deposit scheme can be worth it for tenants, if the landlord and scheme provider are playing by the rules. There are more cons associated with zero deposit schemes for tenants than there are for landlords. But first, let’s examine the upsides.

In theory, you should be able to use an upfront deposit for your next rental once your current tenancy ends. In practice, however, many tenants pay for their next home before moving out of the last one, so their deposit is effectively ‘dead money’. Often, tenants never really get it back until they stop renting altogether. Using a zero deposit scheme significantly reduces the amount initially paid out, so if you’re unlikely to use your full deposit anyway, a non-refundable zero deposit seems like a win-win.

If you have a low income or need to move quickly, a zero deposit scheme offers a less stressful method of securing a tenancy. You’ll still need to pass all the usual reference checks, though. Once you move in, you’ll also have a bigger budget for new furniture or setup costs.

What are the disadvantages of a zero deposit scheme for tenants?

While a zero deposit seems great on paper, there are some downsides. You’ll still have to pay one week’s rent plus a set-up fee, which you’ll never get back. Long-term tenants will also have to pay a yearly (or possibly monthly) admin fee to stay in the scheme. This varies between providers and fees can increase over time.

When you move on, you’ll still have to budget for any costs the landlord may claim against you. Because a zero deposit scheme is a form of insurance, the landlord will be paid directly by the scheme provider. They will then seek to recoup their costs from you, the tenant as per the terms of your agreement. This could be scary if you don’t have the money – a problem avoided by upfront deposits.

Depending on the provider, you may also have to pay a fee to have your case arbitrated. With upfront deposits, the money is always yours. The landlord must provide the proof to claim against you. The onus is reversed for zero deposits, which seems unfair if the landlord claims for everyday wear and tear.

Generation Rent is just one group arguing that tenants may end up paying more overall for less protection if they use a zero deposit scheme. Vulnerable tenants may also feel pressured into using zero deposit schemes as more agencies sign up on a commission basis. This could leave them in debt or with a worse credit rating if something goes wrong.

How can you tell if a zero deposit scheme provider is fair?

If you’re looking to rent a property using a zero deposit scheme, it’s worth taking the time to check if the provider is fair and reputable. Simple steps include checking out their website and doing some basic online research to find reviews and opinions from past/present users. A reputable provider should ideally have all of the following:

  • A clear, concise fee structure, laid out in plain English.
  • Details of their complaints process and FAQs on how any disputes are handled.
  • Positive reviews from recent users, and no horror stories about stealth fees or mismanaged expectations from either landlords or tenants.

So, make sure you take at least a brief look at the provider before agreeing to use a zero deposit scheme. As a renter, it can be a great way to keep your money out of the eternal vacuum of rental deposits. However make sure that the agreement is clear, fair and reasonable before you sign.

HomeViews provides verified resident reviews of the UK’s housing developments. We’re working with developers, landlords and the Government to recognise high performers and help to improve standards in the built environment.

written by

Jan Moys

A residential property expert with over 15 years’ experience creating content... Read all

A residential property expert with ov... Read all