Commercial insurance article archive
How have tenancy deposit schemes changed the lettings industry?
Some agencies remained skeptical when the deposit protection scheme was introduced two years ago and since then further regulation has been suggested, but are agencies seeing an improvement?
In April 2007 the protection programmes were set up, with concern coming from some parties, as Tom Entwistle, editor of Landlordzone.co.uk, questioned whether the service would be fair to both groups. However, on the two-year anniversary of the Deposit Protection Service (DPS) over 540,000 deposits had been protected.
There are three such schemes which are approved by the government – the deposit protection scheme, MyDeposits.co.uk and the Dispute Service. The schemes mean landlords have to register their details at the start and the end of the shorthold tenancy and it guarantees a faster deposit return. The Deposit Protection Scheme differs from the others as it is free to use, with all allowing landlords to manage their account online.
The scheme aimed to give both landlords and tenants more protection, with tenants having the reassurance that they cannot have their money taken off them for no good reason and also that they will get the money back more rapidly after finishing the tenancy. Renters can move their deposit from one property to another, meaning they do not have an overlapping period where they have to find two deposits.
This reassurance for tenants appears to have paid off, as a survey by the DPS found that 91 per cent of them feel safer with the scheme, with just nine per cent saying it made no difference for them. Kevin Firth, director of the organisation, said the situation is "a win win for both parties”.
"Landlords who fail to register a deposit face being fined up to three times the value of their deposit and losing their eviction rights. Tenants who have been proven
to have damaged a property will forfeit money to cover this; while those who have been great tenants will receive their full entitlement back."
Mr Entwistle added that the scheme will particularly help vulnerable people who cannot put pressure on their landlord.
However, it seems the deposit protections scheme may not have reduced the number of incidents in the sector, as from mid-2008 to June this year a 26 per cent rise had been seen in lettings complaints to the Property Ombudsman, compared to a decline in the house buying sector. The lettings market saw a 200 per cent rise in complaints in 2008, which may show that the scheme is not providing a smoother transaction for tenants. However, it should be noted that during this time more agents joined the Property Ombudsman scheme and more landlords came to the market due to the slump in house sales.
The system changed again in April this year when only registered landlords were allowed to sign up to the protection schemes. Only individuals or organisations which are registered with the Association of Residential Letting Agents (ARLA), the National Approved Lettings Scheme, the National Association of Estate Agents or the Royal Institution of Chartered Surveyors can benefit from deposit protection and alternative dispute resolution.
ARLA has brought in new guidelines to help to clean up the industry and stop it being the "black sheep of the property market". Now agencies signing up to the organisation will have to hold professional lettings qualifications, continue to progress their careers and have professional indemnity insurance, as well as having an annual independent audit and plans in place to protect the money they are holding.
Peter Bolton-King, chief executive of the organisation, said that it will protect the tenants if lettings agencies go out of business. "So this offers protection to landlords in the worst-case scenario," he added.
This was highlighted recently when tenants in Wolverhampton became concerned after a letting agency had appeared to shut up shop without telling its customers. Brendan Taylor's company, Moorfoot Estates, is thought to have shut down and as it was not registered with ARLA and did not have money in the deposit protection schemes, residents face losing large sums of money.
However, many think ARLA's registration is not going far enough and a government scheme is needed to cover the whole industry. Adam Sampson, chief executive of Shelter, said that statutory licensing for all letting agents should be brought in.
The recent Rugg Review carried out at York University also suggested this, stating that full, mandatory and independently-led regulation of lettings agents is needed. In its response to the review the government backed up this idea, saying it will help to boost the professionalisation of the sector.
It added: "The register would also have a key role in disseminating information to landlords and so ensuring that they have the basic skills and knowledge that they need to carry out their business."
But with the price of rent fluctuating and the market being flooded with reluctant landlords, who cannot sell their homes so rent them instead, are landlords able to cope with their extra regulation?
A recent survey by the Residential Landlords Association (RLA) of more than 300 landlords found that 70 per cent disagreed with the new proposals and the majority thought that self-regulation was a better system. More than a third of the respondents said that the law should be altered in a different way, to target rogue landlords.
Alan Ward, chairman of the RLA, said: "We would not oppose a register so long as it is very much the 'light touch' Rugg suggested: limited to name, date of birth and business address."
The organisation has also highlighted that different areas of the UK are approaching landlord registration in different ways. It added that evidence from Scotland may show that the scheme does not help to weed out rogue landlords. It said that a quarter of landlords in Scotland are not part of the scheme so it may not be effective in England.
It is likely that many agencies will continue to object against the regulation, but how effective a countrywide scheme will be remains to be seen.
30 Nov 2009
