Date Published 19 June 2026
Landlords and letting agents could soon be required to place all tenant deposits into custodial deposit schemes, under further rental reforms being considered by the government. At present, landlords and agents can protect a tenant's deposit in one of two ways. They can either transfer the money to a custodial scheme, where it is held by an approved deposit protection provider, or use an insured scheme, where the landlord or agent keeps the money in their own account and pays a fee to protect it.
Housing minister Matthew Pennycook has confirmed that the government is looking at removing insured tenancy deposit schemes. If this goes ahead, all deposits would need to be held by an approved custodial scheme provider instead.
Why is the government considering this change?
The government says the aim is to make tenant deposits safer and to give tenants more confidence when challenging proposed deductions at the end of a tenancy. Under a custodial scheme, the deposit is held by an independent third party. Under an insured scheme, the landlord or agent holds the money, which the government says can create an imbalance between landlords and tenants.
The government has also raised concerns about fraud risk in the insured model, particularly where insured registrations are misused or where agents fail to maintain the necessary insurance or client money protection.
What would this mean for landlords?
For many landlords, the main change would be practical rather than legal. Landlords are already required to protect deposits correctly, provide the correct prescribed information and ensure deposits remain protected throughout the tenancy. These obligations would remain.
The key difference is that landlords and agents may lose the option of holding deposit funds themselves. Instead, the money would need to be transferred into a custodial scheme from the start of the tenancy. This could reduce flexibility for landlords who currently use insured schemes, especially those managing multiple properties. It may also require agents and landlords to update their internal processes, tenancy paperwork and deposit handling procedures.
What should landlords do now?
No immediate action is required until the government confirms the final details and implementation timetable. However, landlords should start preparing by reviewing how their deposits are currently protected. Landlords and agents should:
• Identify which tenancies currently use insured deposit protection.
• Check that all deposits are correctly protected and prescribed information has been served.
• Keep clear records of deposit registrations, certificates and tenant communications.
• Review tenancy agreements and agency terms to ensure they can be updated quickly.
• Prepare for possible changes to move-in procedures and end-of-tenancy deposit handling.
Could this lead to more deposit disputes?
Possibly, at least in the short term. Where deposits are held independently, tenants may feel more confident challenging deductions. This means landlords should ensure they have strong evidence to support any proposed deductions, including clear inventories, check-out reports, photographs, invoices and written communication. Over time, a single custodial system could create more consistency and clearer outcomes for both landlords and tenants.
The key message for landlords
The proposed reform does not remove the need for careful deposit compliance. In fact, it makes good administration even more important. Landlords should keep accurate records, use robust inventories and make sure their agents have clear systems in place. Those who already use custodial schemes are unlikely to see a major change, but landlords using insured schemes should be ready to adapt if the proposals become law.
At Adams Estates, we understand that deposit rules can be time-consuming and difficult to keep up with, particularly as legislation continues to change. As part of our fully managed service, we ensure tenant deposits are properly protected in line with current and updated legal requirements, helping landlords stay compliant while reducing the administrative burden. This gives our clients added reassurance that their tenancy paperwork, deposit protection and compliance processes are being handled professionally from the outset.
