What is a zero deposit scheme and what are the pros and cons?

Having a deposit to rent a new property can be difficult for many people. 

Landlords are required to protect this money, usually equivalent to five weeks’ rent, but zero deposit schemes offer an alternative for tenants.

Here’s what you need to know about zero deposit schemes.

What is a zero deposit scheme?

Normally, when tenants move into a privately rented property in England under an Assured Periodic Tenancy, the standard form of private tenancy since 1 May 2026, they must pay a deposit to the landlord. 

This will be returned when they move out if the property remains in the same condition.

If there is any damage, the landlord can take funds from the deposit for repairs.  

Under the Tenant Fees Act 2019, as maintained by the Renters' Rights Act 2025, the deposit amount is capped at five weeks' rent for properties where the total annual rent is less than £50,000, or six weeks' rent if the total annual rent is £50,000 or above.

These caps apply to all private tenancies in England and anything requested above these limits is a prohibited payment that can be legally challenged.

The landlord needs to keep the deposit in a protected tenancy deposit scheme while the tenant lives in the property.  

The deposit is a lot of money for tenants to provide upfront on top of the first month’s rent.

So, zero deposit schemes were set up to give renters an alternative option. 

Zero deposit schemes, also known as no deposit schemes, allow renters to pay less money upfront and instead enter an insurance agreement with their private landlord. 

The terms of the agreement make the tenant liable for the cash equivalent of between six and 12 weeks’ rent.

The landlord can claim for any damage to the property, and the scheme will pay them and then bill the tenant.  

There have been significant concerns raised by housing professionals about zero deposit schemes.

The Competition and Markets Authority (CMA) investigated concerns about whether tenants using no deposit schemes fully understand their liabilities, as well as about how some letting agents sell these schemes, including concerns around pressure selling and undisclosed commissions.

Following its investigation, the CMA has committed to issuing new guidance for letting agents, setting out their obligations when selling zero deposit products.

If you are a tenant thinking about using a zero deposit scheme, make sure you read the agreement carefully and understand what you may have to pay.

What does the Renters' Rights Act 2025 mean for tenants?

The Renters' Rights Act 2025 is the most significant reform of private renting in England in a generation and came into force during 2025.

It abolished assured shorthold tenancies, the standard fixed-term tenancy that had been the default since the Housing Act 1988, and replaced them with rolling, periodic tenancies known as Assured Periodic Tenancies. This change took full effect on 1 May 2026.

Importantly for tenants comparing their options, the Act also introduced a new one-month cap on rent in advance, limiting how much a landlord can request upfront at the start of a tenancy. This is separate from the tenancy deposit and is worth factoring in when calculating your total move-in costs.

The existing tenancy deposit protections established under the Tenant Fees Act 2019, including the five and six weeks' rent cap, have been maintained under the new framework and continue to apply to all Assured Periodic Tenancies.

How does a zero deposit scheme work?

If you’re considering a zero deposit scheme, your estate agent must be registered with a scheme to proceed.

They’ll also need to ensure the landlord is happy to use a zero deposit scheme. 

At the end of the tenancy, the landlord can raise a claim for any damage to the property.

The scheme will pay the landlord and then bill the tenants, which they can dispute.  

If the tenants don’t pay straight away, no deposit schemes can use a debt collection agency to get money from tenants, which can affect their credit rating. 

So, while tenants will avoid an expensive deposit initially, they could get a hefty bill when they move out. 

Do you have to pay any fees?

Yes, while the initial costs are lower than a traditional tenancy deposit, tenants still pay fees.  

To enter a no deposit scheme, tenants must make an initial payment, typically equivalent to one week’s rent, plus there may be set-up costs and admin fees. 

There are no fees for the landlord, and using a no deposit scheme can mean less admin for them, as they don’t need to set up a tenancy deposit protection scheme. 

But it’s vital to stress that with no deposit schemes, even if the landlord makes no claims, tenants will not get any of the money they’ve paid back.  

Can anyone qualify for a zero deposit scheme?

To apply for a zero deposit scheme, the first thing a tenant needs to do is speak to their estate agent. 

Before a tenant can join a scheme, they’ll need to go through referencing, where the provider checks details about the tenant, including whether they’ll be able to afford using the scheme.  

If a tenant doesn’t pass referencing, they can ask someone to be their guarantor, who will be liable to make any payments the tenant owes if they don’t pay them. 

Guarantors will also have to pass the provider’s referencing checks. 

What are the pros and cons of zero deposit schemes?

There are many benefits and drawbacks to zero deposit schemes but remember to check your agreement as terms under these schemes can differ.  

The pros of zero deposit schemes 

• Low upfront costs: The upfront costs for zero deposit schemes are much lower than a typical tenancy deposit.

• Less admin: A zero deposit scheme can be less admin for landlords, potentially speeding up the moving process. 

The cons of zero deposit schemes 

• No money back: Tenants won’t get the money they pay into the zero deposit scheme even if they leave the property in a perfect condition.

• Potential bill when moving out: If the landlord raises a claim about any damage when tenants move out, they will need cash to pay. 

How do you settle disputes?

Before you enter a zero deposit scheme, it’s a good idea to check out their dispute policy. 

Some providers may charge tenants a fee for raising a dispute against a landlord’s claim, which can be stressful to deal with and expensive.

Get expert financial and property advice

Whether you are a tenant weighing up the costs of a zero deposit scheme or a landlord navigating the changes brought in by the Renters' Rights Act 2025, the private rental market can be difficult to navigate without the right guidance.

A qualified financial adviser or property professional can help you understand your options, your obligations, and the potential costs involved before you commit to anything.

Unbiased can match you with an adviser suited to your circumstances.