Some headlines have reported that insured tenancy deposit schemes “will be scrapped”. That overstates where things actually are, and it matters — because roughly half of all protected deposits in England and Wales sit in insured schemes.
The two types of deposit protection
Worth being precise, because the difference is the whole story.
- Custodial — you hand the deposit to the scheme, which holds it as a neutral third party for the duration of the tenancy. Free to use.
- Insured — you keep the deposit in your own account and pay a fee to an approved scheme to protect it. If a dispute arises, you must transfer the money to the scheme.
Both are lawful. Both are government-approved. The three schemes are the Deposit Protection Service, Tenancy Deposit Scheme and mydeposits.
Insured schemes are popular with landlords managing several properties because the money stays available rather than being tied up elsewhere.
What the Government actually said
On 12 June 2026, Housing Minister Matthew Pennycook answered a written parliamentary question from Liberal Democrat MP Lee Dillon about differences between insured and custodial schemes.
His answer set out the reasoning for a proposal to remove insured schemes:
- The objective is ensuring tenant deposits are “as safe as possible”
- Under custodial, money sits with a neutral third party
- Under insured, there is an inherent power imbalance, since the landlord or agent holds the money
- Custodial gives tenants more confidence to challenge deductions and use dispute resolution
- There is growing evidence of higher fraud risk in the insured model, including exploitation of insured registration
- Where agents fail to maintain insurance or Client Money Protection, reimbursement can be delayed, leaving tenants exposed
That is the clearest signal yet of a custodial-only direction. It is also, precisely, a written answer describing a proposal.
Why “scrapped” is the wrong word today
Three things have to happen before this affects you:
- The review has to happen. The Government’s review of the tenancy deposit system is due to begin during 2027. It has not started.
- Legislation has to follow. Removing an approved protection model requires legislative change, not a ministerial statement.
- A transition has to be designed. More than 2.1 million deposits worth over £3bn currently sit in insured schemes. Moving that money is not an overnight exercise.
Treat anyone quoting you a date for this as guessing.
What it would mean if it happens
The honest answer is that the legal obligations barely change — what changes is your cash flow and your margin for error.
Cash flow. Deposit money you currently hold would sit with the scheme instead. For a landlord with one property that is a modest difference. Across a portfolio it is a meaningful sum leaving your account.
Timing. Under the insured model you already have to transfer the deposit to the scheme if a dispute arises. Custodial-only simply brings that transfer forward to the start of the tenancy.
Administrative risk. This is the part worth watching. With Section 21 gone, deposit protection failures now carry more weight — a procedural error can undermine a possession claim entirely. Any transition period, where some deposits sit in one system and some in another, is exactly when mistakes happen.
The distinction people are getting wrong
Insurance-backed deposit protection is not the same thing as a deposit replacement product.
- Insured protection — a real deposit exists; you hold it; a scheme insures it. This is what is under review.
- Deposit replacement — the tenant pays a non-refundable fee instead of a deposit. No deposit is held, so deposit protection rules do not apply.
Propertymark has specifically warned against conflating the two. If you are considering a replacement product as a response to this, understand you are changing the arrangement fundamentally — not choosing a different protection scheme.
What to do now
- Nothing urgent. Your insured scheme remains lawful. Do not switch in a panic.
- Know which scheme you use for every property, and check each deposit is actually protected within 30 days with prescribed information served.
- Audit your protection now. With Section 21 gone, an unprotected or late-protected deposit is a serious problem for any future possession claim.
- Model the cash flow impact if you hold several deposits, so a future transition is not a shock.
- Watch for the 2027 review rather than acting on headlines.
Point three is the one that pays off regardless of what happens to the schemes.
Frequently asked questions
Do I need to move my deposits to a custodial scheme now?
No. Insured schemes remain approved and lawful. There is no requirement to move, and no date by which you would have to.
When would this change take effect?
Unknown. The review begins during 2027 and any change would need legislation after that. Nobody can currently give you a date.
Is the deposit cap changing too?
No. Under the Tenant Fees Act 2019 the cap remains five weeks’ rent where annual rent is under £50,000, and six weeks’ rent at or above that. This proposal concerns how deposits are protected, not how much you can take.
Why does the Government think insured schemes are riskier?
The minister cited growing evidence of fraud risk, including exploitation of insured registration, and delays to reimbursement where agents fail to maintain insurance or Client Money Protection cover.
Should I switch to a deposit replacement product instead?
That is a different decision entirely and worth taking advice on. No deposit is held, so protection rules do not apply — but the tenant pays a non-refundable fee and your recovery route if something goes wrong works differently. Do not treat it as a like-for-like swap.
Does this apply outside England?
Deposit protection operates across England and Wales, with separate arrangements in Scotland and Northern Ireland. This particular proposal concerns the system covering England.
- A proposal, set out in a written parliamentary answer on 12 June 2026
- Not law — review of the deposit system begins 2027
- Would move all deposits to custodial-only protection
- 2.1 million deposits worth over £3bn currently in insured schemes
- Insured schemes remain lawful — no action needed today
- Deposit cap unchanged at five weeks’ rent (six above £50,000)
Related Articles
- Deposit protection rules for UK landlords
- Life after Section 21 — how possession works now
- Landlord compliance deadlines 2026–2030
RentalReadyUK produces plain-English compliance guides for private landlords in England. We separate confirmed law from proposal and speculation, and we date every page. This article is general information and not legal or financial advice.