What Exactly are Zero Deposit Schemes?
With housing costs and monthly rents increasing year on year, the upfront costs of a deposit for a new tenant can be a significant burden.
So for tenants and landlords, a zero deposit guarantee scheme can be a good option to help reduce your total moving in costs.
Rather than paying a month's rent in advance as a security deposit, a simple low-cost one of fee payment for a 0% deposit scheme can provide the same security protection for the landlord by covering any damage, rent arrears and legal fees if the tenancy goes bad.
In today's article, we look at what zero deposit schemes are, and what landlords and tenants should consider when using them.
Article updated: June 2025
Contents
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by Robert Jones, Founder of Property Investments UK
With two decades in UK property, Rob has been investing in buy-to-let since 2005, and uses property data to develop tools for property market analysis.
What is a Zero Deposit Scheme?
In simple terms, a zero deposit scheme is an arrangement which means that when a tenant rents a property they do not need to provide the usual security deposit as the landlord accepts a specific insurance policy instead to replace it.
Zero deposit schemes are also sometimes known as no deposit schemes, no deposit options, nil deposit schemes, deposit replacement schemes or deposit replacement insurance.
Traditional Security Deposits
Normally when a property is let the tenant must provide a cash deposit. This deposit acts as security should they damage the property or fail to pay the rent.
A tenancy deposit is normally equivalent to five weeks’ rent. The maximum deposit that can be required by law across England, according to the Tenant Fees Act 2019 is five weeks’ rent.
By law tenancy deposits must be lodged with a tenancy deposit protection scheme. Tenancy deposit protection schemes include the Deposit Protection Service, MyDeposits, and the Tenancy Deposit Scheme.
How a Zero Deposit Scheme is Different
When a tenant rents a property then instead of lodging a deposit they pay a fee to a zero deposit scheme provider. In return for this, the scheme provides a guarantee (in the form of an insurance policy) to the landlord. This guarantees that the scheme will pay any sums that become due to the landlord due to an issue with the tenancy (rent arrears, damage, legal fees) that would normally be covered by a cash deposit.
How does a Zero Deposit Scheme work for Tenants
Deposit Free Renting
The main advantage of zero deposit schemes for tenants is that they don’t need to save for a cash deposit. The zero deposit scheme will effectively replace the deposit and therefore it reduces the upfront costs of renting.
These schemes mean tenants may be able to move sooner than they otherwise would, or move more easily. It can also mean tenants can sign a new tenancy without waiting for the deposit from their last tenancy to be refunded.
Extra Costs
One key issue with zero deposit schemes is that the tenant must pay a fee to use the scheme, this is a cost, and not a payment they get back if they leave the tenancy on good standing, as the upfront payment goes to the insurance policy and not to the landlord or to a deposit holding scheme.
Ultimately this makes renting more expensive in the long run as it increases the total costs for tenants. Typically a zero deposit scheme fee is equivalent to one week’s rent and there may also be additional fees.
Unlike with a cash tenancy deposit the zero deposit scheme fee is not refunded at the end of the tenancy.
The Tenant Still Remains Liable
It’s also very important to make it clear that a zero deposit scheme does not take away the tenant’s liability to pay for any damage, nor pay their rent, under the tenancy agreement. Whilst the scheme may pay out to the landlord where it is proven the tenant is in default or at fault, the scheme provider will then likely seek to get the payment back from the tenant via direct payment or a debt collection company.
So they might act as a solution to help get a tenancy started, but they are not a process to remove all liability from a tenant.
How does a Zero Deposit Scheme work for Landlords
May Attract More Tenants
The main advantage of a zero deposit scheme for a landlord is that they can let their properties to tenants who do not have the money for a deposit. This might be particularly useful at the moment when the high cost of living means would-be tenants find it hard to save for a deposit.
Landlords who offer a zero deposit scheme might find it easier to find tenants and may receive more tenant applications as it reduces the barriers to renting.
Additional Protection
Some zero-deposit schemes offer more protection than a normal cash deposit does. Instead of offering five weeks’ of protection as with a cash deposit, these schemes may offer to pay out the equivalent of six, eight or even 12 weeks’ rent.
It may make things easier if there are any problems, damage or unpaid rent at the end of the tenancy. The zero deposit scheme will, or should, pay the landlord quickly and recover their costs from the tenant later.
This process maybe more favourable for a landlord without worrying about delays in payments and increases in their btl costs as the insurance will take over and cover the legal process.
Faster Letting
A tenant can sign a new tenancy without waiting for the deposit from their last tenancy to be refunded. For landlords who have found the perfect tenant, this could reduce void periods, as it enables the tenant to move in sooner.
No cash deposit
A downside of zero deposit schemes for landlords is that they do not hold a deposit in cash. They will need to trust either the tenant or the zero deposit scheme to pay out anything they might be owed at the end of the tenancy.
Some councils provide deposit bonds, which are not to be mistaken for a zero deposit insurance scheme. Often a council deposit bond requires significant paperwork and is a very lengthy process to get any payment back with an excessive amount burden on the landlord to make all attempts to get paid by the tenant first.
There is also a risk to the landlord that offering zero-deposit renting could attract tenants who are cash-strapped. If they cannot afford the deposit they may struggle with paying typical living costs and rent too.
This could be setting up the tenancy for failure early, if the tenant is already clearly stretched beyond their means.
Zero Deposit Schemes: A Step-by-Step Guide
- The landlord or letting agent finds a tenant for the property. They make their usual checks, including reference checks.
- Both the landlord and tenant agree to use a zero deposit scheme instead of a cash deposit.
- The tenancy is signed, the zero deposit scheme paperwork completed and the insurance fee paid by the tenant.
- The tenant moves in.
- The tenancy operates completely as normal. The tenant pays the rent as normal.
- At the end of the tenancy, the landlord submits their claim for any damage that has occurred or any unpaid rent. If the tenant does not pay this but does not dispute it, the zero deposit scheme pays the landlord directly.
- If the tenant disputes the landlord’s claim it can be referred to an adjudicator. If the landlord’s claim succeeds, fully or partly, the zero deposit scheme should pay out if the tenant does not.
- The scheme with then claim the costs from the tenant directly.
How Much Does a Zero Deposit Scheme Cost?
Zero deposit schemes are paid by the tenant to the scheme provider and typically cost the tenant on average one week’s rent.
For example, if the rent is £1,500 PCM the zero deposit fee would be £375 as a one-off payment at the beginning of the tenancy.
Some schemes may also charge the tenant a set-up fee on top. This depends on the scheme but maybe around £50. There may also be an annual renewal fee and extra fees to pay in case of disputes. Each scheme is different so is important to check the details of the scheme before you apply (if you are a tenant) and before you offer it as part of the letting (if you are a letting agency or landlord).
Zero deposit schemes do not usually cost the landlord anything.
These kinds of zero deposit schemes should not be confused with landlord insurance, which is a payment a landlord can choose to make and which covers a greater range of scenarios and typically for larger amounts, like non-payment of rent, property damage, court costs, legal fees and maybe even void periods whist you find a new tenant (depending on how comprehensive the policy is).
Who Offers These Schemes?
A number of companies offer zero deposit schemes. These include Flatfair, ZeroDeposit and Reposit.
Some letting agents also offer zero deposit schemes to their tenants and landlords and these schemes are usually provided by a third-party supplier.
note: Zero deposit schemes may pay a commission to those letting agents who introduce landlords and tenants to them.
Do I Have to Use a Zero Deposit Scheme?
No. None of the parties to a tenancy can be compelled to use a zero deposit scheme if they do not wish to. It is not a legal requirement and tenants can indeed choose to pay a standard deposit instead as a condition of renting a property.
Are They Legal?
Yes, zero deposit schemes are legal. When letting property there is no legal requirement that a cash deposit has to be paid at all, so it is legal to use an insurance policy like a zero deposit guarantee rather than a cash deposit.
Things to check when using a zero deposit scheme:
- What the scheme costs, both in initial and ongoing charges.
- Who is providing the zero deposit scheme? For example, a landlord, letting agent or zero deposit company.
- Whether the scheme is insurance backed, ie. underwritten by an insurance company, or not.
- What support is provided to landlords and tenants, especially in the event of a claim?
- What arrangements there are for dispute resolution? Does the scheme use an independent adjudicator and if so who?