Government officials have announced plans to prevent landlords and letting agents from holding tenant deposits in personal bank accounts, marking a major shift in how rental deposits are managed. The reform, part of broader efforts to reshape the private rented sector, would replace existing insured tenancy deposit schemes with custodial models overseen by approved third-party providers. Housing minister Matthew Pennycook confirmed the move, stating it aims to “ensure tenant deposits are as safe as possible.”
Currently, landlords and agents can retain deposits if they pay a fee to protect the funds. Under the new system, all deposits would be held by neutral third parties, removing what officials call an “imbalance of power” between renters and property owners. The change follows the Renters’ Rights Act, which abolished Section 21 evictions and imposed stricter rules on landlords. Recent data indicates 42% of landlords are now considering reducing their property portfolios due to rising regulatory demands.
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The reform would require letting agents to overhaul deposit handling processes, ending a system in place since 2007. Pennycook emphasized that custodial schemes reduce fraud risks, citing reports of “exploiting insured registration.”
The government argues the move will provide greater protection for tenants and remove what it describes as an imbalance of power between renters and property owners. Pennycook told MPs: “The proposed removal of the insured schemes is based on the objective of ensuring that tenant deposits are as safe as possible.”
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Existing insured deposits would need to be moved to custodial schemes, a process requiring careful coordination between landlords, agents, and deposit protection providers. The move reflects ongoing efforts to address tenant concerns about financial security and transparency in the rental market.
Landlords and agents face a period of adjustment as they adapt to the new system. While the reform aims to simplify deposit management, the focus will remain on procedural compliance. “Landlords must ensure they meet deadlines and provide required information to avoid penalties,” said a government official. The government’s next steps will likely involve detailed guidance on how to implement the changes without disrupting the rental sector.
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For now, the proposal remains in planning stages, with further details expected as the government continues its rental reform program. The move shows a broader push to strengthen tenant protections and reduce systemic inequities in the private rented housing market.
