The struggle to scrape together six weeks rent for a deposit could become a thing of the past, as a new mobile phone application is offering tenants the option to buy insurance against damage instead of paying thousands of pounds upfront to move home.
The InsureStreet app allows tenants to apply for properties under an insurance scheme as an alternative to paying a refundable tenancy deposit. Tenants end up paying between 5% and 15% of the full deposit as an insurance premium.
The app claims to give tenants more financial freedom and landlords better cover – but do either come out better off?
Find out more: Tenancy deposit scheme
How does InsureStreet work?
On the app, tenants can browse for properties and apply online. Once accepted, the tenant can choose to make a one-off insurance payment to cover the property deposit.
Each landlord can select a deposit amount they wish to be insured for, up to a maximum of eight weeks rent or £30,000, or the lower of the two. The insurance is under-written by Hiscox.
How much tenants pay – between 5% and 15% of the deposit – will be determined by a ratings system. The app will evaluate how long the tenants have been renting, previous recommendations from landlords and their payment history.
This online profile will also be available to prospective landlords. However, renters also have power to rate and review their landlords and lettings agents, who each have their own public profile.
How much does insurance cost?
In the current market, rental deposits are increasingly steep, making it especially hard for first-time renters to secure a decent property.
The average monthly rent in London is now £1,519, meaning you would need to front up £2,103 for the deposit alone. With the app, a tenant would pay between £105 and £315 for insurance.
Our table below gives an example of how rental deposits compare to InsureStreet fees – keeping in mind that deposits are refundable, while premiums are not.
|Rental price per month||Refundable six-week tenancy deposit||InsureStreet premium on a six week deposit|
Are tenants better off?
For tenants who would struggle to afford a deposit, the scheme may be a preferable option, tenant lobby group Generation Rent suggested. But those who have funds available should potentially think twice.
As long as the property isn’t damaged and the rent is paid, most tenants get a full refund on their deposit, Generation Rent said. Given the insurance premium is non-refundable, a tenant who causes no damage may be worse off paying into the insurance scheme.
Tenants should also be wary of how the online profile operates, Generation Rent warned. The profile shows previous claims made against previous policies, as well as a rental history and a rating – it’s possible a prospective landlord may use this information to weed out tenants, fairly or not.
Find out more: Tenancy agreements – what you need to know
Are landlords protected?
With InsureStreet, landlords have the choice to nominate the level of cover they need, giving them freedom to ask for up to eight weeks.
However, the Residential Landlord Association (RLA) says that landlords need to look at the ins and outs of the policy offered, and make sure it covers them in all situations. The InsureStreet plan covers tenants for the length of their lease – but landlords should confirm what happens if the lease gets renewed or becomes periodic.
Find out more: Becoming a landlord – how to manage buy-to-let
Landlords should also investigate the dispute resolution procedures and the timelines involved in getting a claim approved, the RLA suggested. The benefit of a deposit is that the money has already been paid into the scheme. Under an insurance policy, landlords have to make a claim to the insurer to get paid.
In addition, the lettings agents association ARLA Propertymark issued a word of warning – tenants may be less likely to maintain the property or paying up outstanding rent if their deposit is not on the line.
The National Landlords Association – which owns a stake in tenancy deposit scheme My Deposits -recommends asking yourself a number of questions, including:
- Is the cover provided by the policy sufficient, and are you confident it will pay out?
- Are the actions of uninsured third parties (visitors or unauthorised sub-tenants) covered?
- What is your right of appeal if a claim is denied?
- If the scheme is collecting rent, does it have adequate client money protection insurance?
Find out more: Landlord insurance – how to get protected