Deposit reform: A defining moment for the private rented sector

Eddie Hooker, CEO of mydeposits:

After almost twenty years leading mydeposits I can say with confidence that the private rented sector is entering one of the most defining periods in its history. The Government is looking at reforms that could completely reshape how tenancy deposits are protected. These proposals touch every landlord, agent and tenant in the country and they include the idea of moving to a single custodial scheme, phasing out insured protection, creating a national digital platform and rethinking how deposits move between homes. When more than five billion pounds of tenant money sits in protection at any moment the weight of these decisions is enormous.

I welcome the ambition and there is real opportunity here. We can build a system that is clearer, faster and more user friendly than the one we have today, but opportunity only works when the risks are handled honestly. If the changes are rushed or the complexity is brushed aside the consequences will be felt across the entire rented sector. My experience has taught me that big change succeeds only when you balance bold thinking with practical reality.

The idea attracting the most attention is the possibility of a single custodial provider for England and Wales. On the surface it sounds attractive, one brand, one process and one place to go. I understand why some people are drawn to that approach. The reality, however, is more complex. Placing every deposit in the country under a single organisation concentrates an enormous level of responsibility in one place. If that system were to falter, the entire market would feel the impact immediately. A cyber incident would create a simultaneous, system-wide shock. By contrast, a structure with multiple providers distributes risk and allows the system to absorb pressure when problems arise. Most national infrastructure in this country is designed with resilience as a core principle, which is why critical services are not entrusted to a single operator.

It is also important to consider who a single custodial model is most likely to benefit. A scheme responsible for billions of pounds is very attractive to major financial institutions and giant global operators. Banks, professional service firms and big technology companies tend to view such a substantial pool of funds as an opportunity for stable, long-term revenue. Their perspective is often shaped by investment potential rather than by service delivery.

That viewpoint does not always align with the practical realities faced by landlords managing repairs, arrears, end-of-tenancy issues, claims and evidence. Nor does it consistently reflect the needs of agents who depend on systems designed around the day-to-day functioning of the sector. While tenants’ interests are vital, they are not the only interests that require fairness and balance. Any future model must serve all participants in the system, rather than favouring those with the greatest financial influence or the most persuasive commercial case. Landlords in particular need more than a shiny national brand, they need confidence that when they raise a claim it will be handled consistently and a system that respects their time and the evidence they provide. They need clarity about how long adjudications will take and certainty that decisions are based on a real understanding of the realities of managing rental property. A single large corporate provider with no direct experience of accompanying a landlord through a check-out inspection, managing an uncooperative tenant, or resolving cleaning and damage disputes at scale may find it difficult to achieve that level of sector understanding. Fairness must extend to everyone involved, including the person who owns the home and carries the financial risk when things go wrong.

The second challenge is the timeline. To build or scale a platform capable of safely handling billions in client money, integrating with hundreds of letting agent systems, operating a high-volume adjudication service and communicating effectively with millions of users within a single year would be an extraordinary undertaking. Even experienced providers would approach with caution. If the contract were awarded to a new entrant there is a real question about whether that timetable could be achieved without introducing significant risk into the system.

This leads to the proposal of moving entirely to custodial protection. The underlying principle is clear, holding the money centrally removes the possibility of misuse. The financial sustainability of custodial schemes however relies heavily on interest rates. When rates are high, custodial income is healthy, but when they fall, revenue can shrink dramatically. We saw this after the financial crisis when interest rates remained extremely low for more than a decade. Without insured schemes providing balance, a custodial only model would have been under real strain. Any transition in this direction, requires confidence that the structure is strong enough to withstand the next economic downturn, not just the current conditions.

The discussion around insured protection is another area where realism is essential. Insured deposits cannot be forced into custodial protection partway through a tenancy as the consumer protections attached to those deposits must remain in place until the tenancy ends. Some tenancies run for several years and an attempt to move millions of insured deposits at once would create widespread disruption. Agents would be required to rewrite documentation at speed, increasing the likelihood of mistakes. Communication channels would come under significant strain and disputes would inevitably rise. A managed run off that allows the market to transition gradually is the only practical approach.

The concept of a national digital platform, however, presents genuine opportunity. A single front door where every landlord, agent and tenant can manage their deposits regardless of which provider operating behind the system could bring more consistency and usability. Such a platform could support deposit passporting, improve data quality and strengthen oversight. The scale of this undertaking must be recognised. Development would be expensive, cyber resilience would be critical, and integration would be required across the wide range of systems used throughout the sector. And most importantly it needs to be delivered over a realistic timeframe to avoid the problems that have affected many rushed public sector IT projects.

Another trend worth addressing is the rise of deposit alternatives. These products have become popular because many tenants struggle to raise a five-week deposit and because some agents receive commission when they sell them. In a custodial only market, there is a risk that these products grow even further. They have their place, but they can be far more expensive for tenants in the long run. If fairness is the goal, then transparency around these products must improve. Tenants must understand what they are signing up for and the industry must be honest about the costs. Landlords should not find themselves dragged into disputes caused by products they never asked for and cannot control.

For landlords one of the biggest frustrations is how long it can take to return a deposit. The biggest cause of delay is the need for both parties to agree before anything is released. If one party goes silent the whole process stalls. Scotland takes a different approach, deposits are returned automatically unless the landlord raises a dispute within a set period. It is simple and it speeds everything up. Combine that rule with clearer evidence requirements and better technology to triage disputes and we can deliver a much faster experience for everyone. However, faster does not mean less fair. It means removing friction that adds no value for landlords or tenants.

Meanwhile the Renters Rights Act is arriving, and it changes the rhythm of tenancies entirely. With fixed terms removed and rolling contracts becoming the norm the deposit system loses the certainty of predictable end dates. More churn means more disputes and more pressure on operational teams. If we try to introduce major tenancy deposit protection reforms at the same time as the Renters’ Rights Act the sector will be stretched to its limit. Timelines must align or we risk instability right at the moment we are trying to modernise the system.

My view as CEO of mydeposits is that we can build a better system and we can modernise and make things faster and fairer, but progress only works when it is grounded in reality. The way we get there matters as much as the destination. A single scheme introduced too quickly, while phasing out insured protection and adapting to new tenancy laws, creates far more risk than reward.

A balanced approach is the smarter path. Standardise data and technology across all schemes so the foundations are strong and phase out insured protection gradually. Make deposit passporting a reality so tenants move more easily without placing new burdens on landlords. Encourage innovation across the entire sector and maintain enough provider diversity to keep the system resilient and responsive.

Deposit protection is vital to the health of the private rented sector, landlords need confidence, tenants need fairness and agents need systems that support with compliance not struggle against it. I am confident that we can deliver all of this but only if the reforms are designed with balance, responsibility and a clear understanding of what is at stake. Evolution is welcome, however it must be done properly.