The Government has announced plans to reform tenancy deposit protection rules in England, with Housing Minister Matthew Pennycook confirming that ministers are considering the abolition of insured tenancy deposit schemes.
What is changing?
Currently, landlords and letting agents can choose between:
- Custodial schemes – where the deposit is held by an approved tenancy deposit provider.
- Insured schemes – where the landlord or agent retains the deposit funds while paying a fee to a deposit protection scheme.
Under the proposed reforms, all tenancy deposits would need to be held in custodial schemes, meaning landlords and agents would no longer be able to hold deposit money themselves.
Why is the Government proposing this?
The Government believes that deposits are safer when held by an independent third party and argues that the current insured model creates an imbalance because landlords and agents control tenants’ money during the tenancy.
What does this mean for landlords?
If implemented:
- Landlords using insured schemes would need to transfer to a custodial model.
- Deposit administration processes may need to change.
- Landlords would lose access to deposit funds during the tenancy.
- Cash flow and operational procedures could be affected, particularly for larger portfolio landlords and managing agents.
Has this become law?
No. At present, this is a Government proposal under consideration, and no implementation date has been announced. Existing deposit protection requirements remain unchanged, including:
- Protecting deposits within 30 days.
- Adhering to the five-week (or six-week for higher-rent properties) deposit cap.
- Providing prescribed information to tenants.
Our View
While the proposal is intended to strengthen tenant protections, landlords should be aware that it could significantly alter how tenancy deposits are managed. We will continue to monitor developments and provide guidance if the Government confirms plans to move to a custodial only system.