Is it actually insurance? What letting agents should ask about deposit alternatives in 2026

A tenancy deposit is a fixed number. It is calculated once, at the start, against a rent figure that was accurate on the day it was agreed. Everything after that moves. The rent moves at renewal. Repair and labour costs move. The tenancy itself now moves in a way it did not a year ago.

That gap between a static number and a moving market is the reason deposit alternatives keep coming up in branch conversations. It is also the reason those conversations deserve better questions than they usually get.

Rents have moved. Deposits have not

Zoopla’s September report puts average UK rents for new lets 2.6% higher in the year to July 2026, up from a low of 1.6% in February, with the average UK rent now standing at £1,343 a month. The direction of travel matters more than the figure. The number of homes available to rent has started falling, with 3% fewer homes for rent than a year ago, and Zoopla expects rental growth to reach between 4% and 5% by the end of 2026.

Deposits are capped at five weeks’ rent, or six where annual rent exceeds £50,000. Against the current average rent, five weeks comes to roughly £1,550 on a new let.

Now compare that to what is actually being held across the sector. The Tenancy Deposit Scheme’s most recent statistical briefing recorded 4.7 million protected deposits in England and Wales and an average deposit of £1,175. That average reflects tenancies agreed across several years, at rents that were set before the recent increases.

None of this is a criticism of the deposit system. It is simply arithmetic. A deposit agreed two or three years ago was calculated against a lower rent, and it sits against repair costs that have not stayed still either.

Periodic tenancies changed the shape of the problem

Before May, a fixed term gave the sector a natural checkpoint. Renewal was the moment a deposit could be reviewed, topped up or left alone.

Since 1 May 2026, new tenancies in England begin as assured periodic tenancies and existing assured shorthold tenancies convert automatically, meaning tenancies have no fixed end date. The checkpoint is gone. Propertymark’s guidance for agents is explicit that deposit levels should be reviewed carefully, must remain within the five-week cap, and that where deposits are not topped up when required, landlords may not have sufficient funds available at the end of the tenancy.

There is a second consequence that gets less attention. Propertymark notes that as tenancies become more flexible and potentially longer, conditions at check-out come under greater scrutiny, and the longer a tenancy lasts the harder it becomes to evidence the difference between fair wear and tear and damage.

So the end of a tenancy in 2028 may involve a deposit set in 2026, against a rent that has since risen, with a longer period of occupation to evidence. That is the landscape every agent is now managing, whether or not a deposit alternative ever enters the conversation.

“Insured” does not always mean what landlords assume

Here is a distinction worth getting straight, because it causes genuine confusion and it is not the fault of anyone involved.

Deposit protection comes in two forms. In a custodial scheme, the scheme holds the money. In an insured scheme, the landlord or agent holds the money and pays a fee to the scheme. TDS figures put the split at roughly 54% custodial and 46% insured.

The word “insured” in that context describes protection for the tenant’s money if the landlord fails to repay it. It does not mean the landlord is insured against a loss. If the eligible loss at the end of a tenancy is larger than the deposit being held, an insured scheme does not produce more money. The cap is still the cap.

That is worth saying plainly, because when a deposit alternative describes itself using insurance language, landlords and agents reasonably want to know which meaning is in play.

Five questions worth asking of any deposit alternative

If your agency is weighing up whether to offer one, these are the questions that separate products that look similar on a website.

Is this an insurance product, or a service that sits alongside one? Some deposit alternatives are insurance contracts. Others are commercial agreements that provide a similar outcome by a different route. Both can be legitimate. They are not the same thing, and the difference shows up when a claim is paid.

When a valid claim is paid, whose money is it? This is the practical version of the question above. Ask whether an insurer carries the risk, or whether the payment depends on recovery from the tenant.

What does the tenant pay, and is any of it refundable? A tenant who feels the cost was unclear at the start becomes a problem for the branch, not the provider. Ask what is disclosed, when, and how prominently.

When does protection actually begin? With joint tenancies this matters more than it sounds. If three sharers are named and two have completed the process, find out exactly where that leaves the landlord.

How does the protection stay current? Given everything above about periodic tenancies and rising rents, ask whether the protected amount can be reviewed during a tenancy, or whether it is fixed at the point it was set.

What your branch is allowed to say

This part is often skipped, and it causes more problems than the product choice itself.

Arranging or advising on general insurance is a regulated activity. A firm that is not directly authorised needs to act under a principal, and the FCA distinguishes between roles. An introducer appointed representative can introduce customers and distribute approved financial promotions, but cannot advise on, arrange or conclude the contract.

In branch terms, that translates into something quite simple. Presenting a tenant with their options and giving them approved information is an introduction. Telling them which option is better for their circumstances, or commenting on whether the price is good value, moves towards advice.

The practical version for your team: show the choice, keep it factual, and pass anything you are unsure about back to the provider. That is not just good compliance discipline. It is also what protects your landlord relationship, because an agent who recommended a product owns the outcome in a way an agent who presented a choice does not.

Where Skip the Deposit sits

We built Skip the Deposit as an insurance product, and the answers to the five questions above are the reason we are comfortable putting them in an article rather than burying them in a policy document.

It is insurance. The insurer carries the risk, which means a valid claim does not depend on recovering the money from the tenant first. Cover runs up to the standard deposit value, so the landlord is not being asked to accept less protection in exchange for the tenant paying less upfront.

The tenant pays a non-refundable fee rather than finding five weeks’ rent at move-in, and we say that plainly at the point they choose, because a tenant who understands what they bought does not come back to your branch six months later feeling misled.

On keeping protection current, the deposit amount can be reviewed annually and adjusted within reason where appropriate. Given that periodic tenancies have removed the renewal checkpoint, that is the feature we would point a portfolio landlord towards first.

And the cash deposit stays on the table. Your branch offers both, the tenant decides, and your team never has to recommend one over the other.

The decision is yours to make

Deposit alternatives are not right for every agency or every landlord. Plenty of branches will look at the questions above, decide the traditional deposit suits their portfolio, and be entirely correct.

What is harder to justify is offering one without knowing the answers. Your landlords are relying on your judgement when you put any option in front of them, and the questions in this article are the ones they will ask you at the point a claim is made rather than the point it is offered.

If you would like the answers for Skip the Deposit in more detail, they are on our FAQ page, or you can register your agency at no cost and see how it works before offering it to anyone.

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Sources

• Zoopla Rental Market Report, September 2026
• TDS Statistical Briefing 2024/25, via NRLA
• Propertymark, “Renters’ Rights Act: practical steps for letting agents to take now”
• Propertymark, “What the Renters’ Rights Act means for deposit disputes”
• FCA Handbook, SUP 12 and PERG 5.13, on appointed representatives