The debate over tenancy deposit protection has intensified after campaign group Generation Rent voiced its support for proposed government changes that could see England move entirely to a custodial deposit protection system.
The proposal follows comments from Housing Minister Matthew Pennycook, who confirmed that the government is considering ending the long-standing dual-model system that has been in place for almost two decades.
At present, landlords and letting agents can choose between two forms of tenancy deposit protection. Under the custodial model, the deposit is held by an approved protection scheme for the duration of the tenancy. Under the insured model, landlords or agents retain the deposit themselves, provided they comply with legal requirements and statutory safeguards.
The government believes the insured option may be more susceptible to fraud and argues that it can place tenants at a disadvantage during deposit disputes. As a result, ministers are exploring whether a fully custodial system would provide greater protection for renters.
Generation Rent has welcomed the proposal and launched a petition calling for the insured model to be abolished. The campaign group argues that some tenants face unnecessary challenges when trying to recover their deposits at the end of a tenancy.
According to the organisation, some landlords allegedly inflate claims for property damage, delay engaging with deposit protection schemes or, in some cases, fail to protect deposits correctly in the first place.
The campaign also points out that although tenants can pursue legal action when deposits are not protected, the process can be expensive, time-consuming and difficult for many renters to navigate.
Generation Rent further argues that even when deposit schemes reject what it describes as exaggerated or unfounded damage claims, landlords generally face no financial consequences for making those claims in the first place.
Writing in Big Issue, Generation Rent deputy chief executive Dan Wilson Craw said previous data suggested disputes occurred more frequently under custodial schemes than insured schemes. He believes this reflects the influence landlords may have when they continue holding tenant deposits during the dispute process.
The organisation has previously recommended several reforms aimed at making deposit disputes quicker and fairer for tenants. Among its proposals is removing insurance-backed deposit protection schemes entirely and replacing them with a single custodial system.
Campaigners believe this approach would make it easier for tenants to recover deposits while reducing opportunities for unfair or excessive deductions.
However, not everyone agrees that such a change is necessary. Critics of the proposal argue that there is currently insufficient evidence to justify removing insured deposit protection altogether.
Eddie Hooker, Chief Executive of MyDeposits, has questioned the government’s reasoning, stating that no formal impact assessment, consultation or published research has demonstrated that insured schemes present a significantly greater fraud risk than custodial alternatives.
Supporters of the existing system also point out that insured deposit schemes have protected billions of pounds in tenant deposits since they were introduced in 2007. They argue that these schemes already provide independent dispute resolution alongside legal protections for both landlords and tenants.
As the government continues reviewing the future of tenancy deposit protection, landlords, letting agents and tenants will all be watching closely. Any move towards a single custodial system would represent one of the biggest changes to deposit protection since the schemes were first introduced, with potentially significant implications for everyone involved in the private rented sector.
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