Goverment Confirms Commitment To Tenancy Deposit Schemes

The Coalition Goverment has reaffirmed its support for the three tenancy deposit schemes, which currently collectively protect £1.88bn worth of tenants' deposits.

The confirmation came in a House of Commons answer given by housing minister Grant Shapps. He said: “Although some landlords continue to have reservations, the majority have found access to a free adjudication service under the schemes helpful in resolving disputes.

“At the same time, tenants welcome the increased security the schemes offer to their money."

“In view of this, the Government are committed to ensuring that tenancy deposit protection continues in future. In this context, we will be taking steps to put in place new insurance schemes when the existing agreements expire in 2013. The current custodial scheme will be in place to 2016.”

The two insurance-backed schemes – Mydeposits, run by the National Landlords Association, and the Tenancy Deposit Scheme, backed by ARLA – expect to begin re-negotiations next year.

The Deposit Protection Service (DPS) is the custodial scheme, run by Computershare and which works by holding tenants’ deposits free of charge. The scheme is funded entirely by interest generated on the deposits. At the end of the rental period, the deposit is paid back to whoever is entitled to it.

In theory, a proportion of the interest accumulated is also paid back at Bank of England base rate minus 2.32%, meaning that the DPS pays no interest to consumers whilst rates are below this level. The remaining interest is used to fund the provision of the service.

The law does not allow the DPS to deduct any money from deposits in order to fund its services. In April 2007, when the schemes went live, interest rates were 5.25% – significantly higher than the 0.5% they are currently at today.

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