Why the big money is following deposit replacement products – they could be so much more

There seems no end to the articles with data and opinions that younger generations will increasingly be resigned to renting.

Low interest rates have created a situation with no let-up for the younger generation: property prices keeping marching up and away from people’s ability to earn and save.

Without ‘the Bank of Mum and Dad’ there are decades worth of savings in store for renters before the possibility of home ownership becomes a reality.

Many are trying to capitalise on this trend – quite literally – and it’s often best to follow the money for a glimpse at the shape of the future.

The big news in the UK was the massive fundraising by Zero Deposit.

Beyond being backed by Zoopla, the company has an all-star cast of investors.

It’s no small signal that the last company that had all the smart investors was Zoopla itself.

Intriguingly – in the same week that Zero Deposit announces its large fundraiser – Curran Mckay announced he was stepping down as CEO of Reposit.

Curran, who was on stage pitching Reposit alongside other proptech companies only last week, did not give details of why he was leaving the company he founded. There was also no comment on what he would be pursuing next.

This is strange considering how many commentators in the industry believe that insurance products in the rental space will provide a large amount of new revenue to the property industry.

You only need look to the US for a signal of how insurance products are likely to spread beyond deposit replacement.

Jetty, a New York-based insurance start-up last week raised $11.5m from investors including Peter Thiel – the billionaire Paypal founder who was the first investor in Facebook all those years ago.

This fundraising is on top of the $4m in seed capital raised in April.

The company’s balance sheet is underwritten by Munich Re – the same company underwriting deposit replacement insurance for Zero Deposit.

Described as “the world’s first insurance designed for people who live in cities”, the “Passport” products offered by Jetty include the company acting as a guarantor for 5% to 10% of annual rent and a deposit replacement insurance.

As a sign of things to come, the insurance company covers claims for Airbnb hosting – illegal for tenants in many buildings.

With Munich Re powering proptech companies in the UK as well the US, agents can soon expect to offer specialised insurance to cover renter possessions in addition to the new wave of deposit replacement insurance products.

But unlike US counterparts, we’re still a long way behind on naming conventions: Jetty’s competition in the US is Lemonade.com – which itself has raised a cool $60m in the two years since it was founded.

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3 Comments

  1. MichaelDay

    Deposit replacement makes sense as we currently see some £3.2 billion tied up in deposit schemes basically doing nothing and yet this money could be in the economy or being saved for house purchase via a Help To Buy ISA or similar.

    After all, you don’t buy a car for £20,000 and then get asked to put down £30,000 as a deposit in case you have a crash!

    Clearly the tenant fee ban is likely to see a change of Zero Deposits approach which, by my understanding, is currently for the tenant to pay and for the agent to receive a commission.

    Schemes like DLighted are genuine insurance policies and operate as other policies would with a simple claims approach whereas other schemes are basically warranties.

    Landlords may initially be nervous but with the Government likely to reduce the level of deposits held in schemes, their “cover” as they see it will reduce anyway.

    Deposit insurance will also build up a record of “bad tenants” who, if they have poor claims histories will find it difficult to get re-insured. At the moment there is no record of deposit returns so a tenant can move from one property to another with a terrible history that remains hidden.

    Agents with their fingers in the deposit till will be unable to do so – which is a good thing – we are already on course for over £1m of “stolen” deposits this year.

    I see deposit replacement as a sensible alternative. Ian Wilson of Martin & Co thinks it will be as popular as a Christmas Tree in January.

    We shall see!

     

     

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  2. KByfield04

    Some rather bizarre points made above Michael- where is a rental deposit more than the rental contract or property value? No, you dont buy a £20k car with a £30k deposit but you also dont get to drive a 6 figure asset off of a forecourt without any money down do you? You cant reserve a holiday without paying a non-refundable deposit. You dont buy a property without a deposit……..I could go on. Yet tenants, with the protections already in place, should be allowed of a high value asset with no commitment other than the rent? I am not sure that is fair- do you?

    The argument that this money goes in to the economy- potentially, yes, but that is on the basis you have a Tenant with zero savings- not sure I would want that. If they want to put the money towards a property purchase they can- as they get the money back.

    The argument of ‘money lost’ is nil and void as the products amerging carry a cost- which is never returned- tenancies handled correctly get money back in full.

    Most of these products still place the full financial accountability on the tenant- so they are not really getting any cover- and whilst with a deposit you know that 4-6 weeks of cash is there- what if the tenant doesnt have the money to cover his/her liability?

    As a London tenant of nearly 20 years and an agent of 15 I find (and so do so many agents and landlords that I talk to) that the deposit system works- it could just do with better transparency and enforcement and those changes are imminent through the platform we have developed in partnershop with TDS called Thew Depositary.

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    1. ajayjagota75

      You can drive that same six figure car of the forecourt with no deposit if you decide to “rent” it.

       

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