The zero deposit scheme and other options for renters

Anyone who has rented in London, or one of the other expensive UK locations, will likely have shivers when they hear the word deposit. Historically estate agents look for 6 weeks of rent upfront as a rental deposit. So, if you're renting a £2,000 per month property, you will need a (nearly) £2,800 deposit. Even if that is palatable, remember that you also need to pay the first months' rent in advance too, so altogether you would need £4,800 upfront.

What makes this extremely frustrating and difficult for many renters is that you will likely already have a £2,800 deposit tied up in your current property and this can't be touched until usually 1-2 months after you move out. This means that during the month before moving property, assuming £2,000 per month rentals, you could have two deposits sitting in a real estate agents bank account (2 x £2,800), your normal months' rent (£2,000) and the first month of your new place too (£2,000) which equals a crazy £9,600!

Are there any alternatives to the big deposit?

Luckily over the last few years, a few new schemes have been started to help renters in these ridiculous situations. Here are your options:

1) The zero deposit scheme

A hero who inevitably went through the pain of renting in London started up Zero Deposit , a scheme which removes the need for a large deposit. Essentially you as the tenant will pay one week of rent to the scheme, a small setup fee and then £17.50 per year. The scheme then protects the landlord, avoiding the need for the large 6 week deposit.

Only certain estate agents are currently offering this, as the landlord has to also sign up to the scheme, but it's becoming much more common and I'm sure will dominate in the near future.

2) Getting an affordable loan

The example I gave above, involving a renter having nearly £10k tied up in the process, highlighted that cash flow is typically the biggest challenge. E.g. the deposit amount might be fine and you can afford the monthly rent with no problem, but the issue is the need to have two deposits out of your bank at one time, your current months' rent and finally your first month of rent in the new place.

Overcoming a cash flow issue in other situations typically involves a short-term loan, so this is an option to you. Avoid expensive loans if at all possible and consider checking out some of the newer offerings focussed on rental deposits.

For example, Fronted is a company which offers to 'transfer an existing deposit to a new rental property'. As at April 2022, they charge £49.95 to transfer a deposit of up to £3,000.

3) Flatfair - pay 1 week of rent upfront

A number of new startups are starting to disrupt the rental scene. Flatfair's 'no deposit solution' allows renters to secure a propery by paying a fee equivalent to one week of rent (+ VAT) and any damages are paid for separately on move-out.

4) Getting a loan from the parents

Ah, how stress-free life must be if you have rich parents! It's a common approach to overcome the deposit cash flow challenge and so if you're parents have a healthy savings pot then you should ask them to give you a short term loan and of course, buy them a nice present or dinner to thank them when the expensive moving period is over.