The latest research by Hamilton Fraser’s deposit replacement provider Ome, has revealed that up to £1.2bn of tenant money is estimated as being held by landlords and agents without protection via a deposit protection scheme.
Ome’s sister company, mydeposits, manages a quarter of the total deposit protection market and their latest records show they currently protect more than 876,000 live deposits.
This suggests that there are an estimated 3.5 million deposits protected across the entire market which equates to £3.9bn in value.
These figures are compared to data from the latest English Housing Survey report which showed an estimated 4.6 million tenancies in the private rental sector in 2019.
With 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.
This reportedly could lead to as much as £1.2bn in deposit monies that are unprotected.
However, the latest report into deposit protection compliance rates by the Center for Economics and Business Research (CEBR) estimates that 14.5% of all deposits held are not protected by landlords or agents.
This means of the estimated 1.1 million tenancy deposits that are unaccounted for, just over 500,000 cash deposits could currently be unprotected, putting £578m at risk.
The lack of a rental deposit is becoming popular with build-to-rent providers who operate large numbers of rental units and forgo a traditional deposit, which Ome say mitigates the risk by providing additional complimentary services such as cleaning to their tenants.
Matthew Hooker, co-founder of Ome, said: “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.
“We’d always advise tenants to check which deposit protection scheme your agent or landlord is part of and to make sure they give you the documentation confirming the deposit is protected.
“For landlords and agents that would rather not have to worry about the often arduous and risky process of managing a deposit, we’d recommend looking at products such as our own deposit replacement membership rather than hoping they don’t get caught.
“It removes the need to take cash deposits but keeps you protected should the worst happen.”