A huge sum of tenant money is thought to be held by landlords and agents without protection via a deposit protection scheme, the latest research by Hamilton Fraser’s placement provider, Ome, has revealed.

The latest records from Ome’s sister company mydeposits – which manages 25% of the total deposit protection market – shows they currently protect more than 876,000 live deposits.

There is an estimated 3.5 million deposits protected across the entire market, which equates to some £3.9 billion in value, meaning the average tenant is paying £1,139 for a tenancy deposit.

Ome compared these statistics with the latest English Housing Survey report which shows an estimated 4.6 million tenancies in the private rented sector in 2019. With only 3.5 million of these tenancy deposits accounted for in protection schemes, there are potentially 1.1 million tenancies that either have not had a deposit protected, do not have deposits, or are using deposit replacement products.

At worst, there could be as much as £1.2 billion in deposit monies that are not protected.

However, a recent report into deposit protection compliance rates by the Centre for Economics and Business Research (CEBR) estimates that 14.5% of all deposits held are not protected by landlords or agents.

This suggests that of the estimated 1.1 million tenancy deposits that are unaccounted for, just over 500,000 (14.5%) cash deposits could currently be unprotected – putting £578 million at risk.

But this would suggest there are still 586,000 tenancies in the private rented sector that are neither compliant nor unprotected, highlighting a growing preference amongst landlords to ditch the traditional cash deposit.

Landlords’ deposit-taking habits are changing

These figures could be explained by two factors: the increased acceptance of deposit replacement products and more landlords opting to request no deposit at all.

In fact, research shows as many as 600,000 tenancies in the private rented sector are currently opting for one of these two options.

What’s more, the lack of a rental deposit is already becoming a popular theme with Build to Rent providers who operate large numbers of rental units – mitigating the risk by providing additional complimentary services such as cleaning to their tenants.

Ome says as the industry becomes more service-orientated and changes to legislation lead to tenants receiving more protection, landlords and agents are aiming to streamline their businesses.

But for those 500,000 landlords across the nation that have taken a deposit and failed to place it in a compliant protection scheme, there are consequences. For example, they run the risk of fines of up to three times the deposit plus the deposit itself. At £1,139 for the average new deposit, it could cost them £4,556 per unprotected deposit.

Matthew Hooker, co-founder of Ome, comments: “The reality is that the private rental sector is changing and has been changing gradually through the formal introduction of deposit protection in 2006 and the subsequent launch of the more traditional protection schemes.”

“It’s impossible to tell just how many deposits are still sat unprotected in the bank accounts of either rogue landlords or agents but based on market data we can make a conservative estimate that this total value runs into the hundreds of millions of pounds.”

He advised tenants to check which deposit protection scheme their agent or landlord is part of and to ensure that they are given documentation confirming the deposit is protected.

For landlords and agents that would rather not have to worry about the risky process of managing a deposit, Hooker says: “We’d recommend looking at deposit replacement products rather than hoping they don’t get caught. It removes the need to take cash deposits but keeps you protected should the worst happen.”