Landlords who currently use an insured tenancy deposit scheme should keep a close eye on the government’s direction of travel after ministers set out why they are considering removing insured schemes from the reformed deposit protection system.
In a written answer published on 12 June 2026, housing minister Matthew Pennycook said the proposed removal of insured schemes is based on the aim of making tenant deposits “as safe as possible”. The answer contrasts insured protection, where the landlord or letting agent keeps the deposit while it is backed by insurance, with custodial protection, where the deposit money is held by the tenancy deposit provider as a neutral third party.
This is not a cue for landlords to panic or make rushed changes without checking their own scheme rules. It is, however, a useful moment to review how deposits are being handled, who holds the money, what records are kept, and whether the tenant has been given the correct prescribed information.
What is being discussed?
England and Wales currently have government-approved tenancy deposit protection schemes, and landlords commonly choose between two models. In a custodial scheme, the deposit is transferred to the scheme provider, which holds it until the tenancy ends or a dispute is resolved. In an insured scheme, the landlord or agent holds the deposit, while the scheme provides protection if something goes wrong.
The latest written answer says ministers are looking at the difference between those models because tenant representative groups have reported low awareness of the distinction. The government also pointed to concerns that tenants may feel under more pressure to accept deductions where the landlord or agent still holds the money, rather than using alternative dispute resolution.
In a related written answer, the minister said the department receives performance data from tenancy deposit providers and engages with stakeholders about service quality and user experience. The government’s stated concern is not simply administration; it is confidence in how deposits are protected and returned at the end of a tenancy.
Why landlords should pay attention
For small landlords, deposit protection can feel like a routine compliance task that is dealt with at the start of a tenancy and revisited only when the tenant moves out. The risk is that wider reform turns a familiar process into a live operational issue.
If insured schemes are removed or restricted in future, landlords using that route may need to change how they handle deposit money. That could affect cashflow, bookkeeping, agent instructions and end-of-tenancy processes. Landlords who outsource lettings should also check whether the agent uses insured or custodial protection, because the practical handling of the deposit may sit with the agent even though the landlord remains exposed if the basics are not done correctly.
The current rules still matter. GOV.UK guidance says a tenant’s deposit must be protected in a tenancy deposit protection scheme within 30 days of receipt, and tenants must receive the required information. Holding deposits are different, but once a holding deposit becomes a tenancy deposit, it must be protected. If there is a dispute at the end of the tenancy, the deposit remains protected while the issue is resolved.
This sits alongside the wider tenancy reform landscape. Landlords already preparing for changes under the Renters’ Rights reforms may find it useful to treat deposit handling as part of the same paperwork review, rather than as a separate admin task. Our earlier guide to the Renters’ Rights information sheet and tenancy forms covered the importance of getting documents and service methods right before problems arise.
What to check now
A practical review does not need to be complicated. Landlords can start by identifying every live tenancy where a deposit is held, the scheme used, the date the money was received, the date it was protected, and the date prescribed information was served. Any gaps should be dealt with carefully, using the scheme’s own guidance or professional support where needed.
It is also worth checking the handover between landlord and agent. If the agent arranged the tenancy, ask which scheme was used, whether the protection is insured or custodial, and where copies of the certificate and prescribed information are stored. Where a landlord changes agent, the deposit position should be part of the transfer checklist, not an afterthought.
End-of-tenancy records deserve the same attention. Inventory reports, check-in photographs, inspection notes, repair invoices and clear communication about proposed deductions can reduce disputes and make alternative dispute resolution easier if agreement cannot be reached. This is especially important where landlords are already tightening record-keeping around repairs, condition and compliance. The same principle applies to property standards, as set out in our recent article on housing hazards and warning signs landlords should not miss.
What happens next?
The written answers do not by themselves change the deposit rules overnight. They do show that insured schemes are under policy scrutiny, and that ministers are framing custodial protection as a way to improve confidence and reduce risk.
For now, landlords should avoid treating the issue as settled until formal rules, commencement dates and scheme instructions are published. The sensible step is to make sure current deposit protection is clean, documented and easy to evidence. If reform does move towards custodial-only protection, landlords with tidy records and a clear process will be in a stronger position to adapt.
This article is for general information only and is not legal, financial or tax advice. Landlords dealing with a live deposit problem, possession claim or disputed deduction should use official scheme guidance or take appropriate professional advice.
