The Government has signalled that it may be considering significant changes to the way tenancy deposits are protected in England, with proposals suggesting that insured deposit schemes could eventually be replaced by a custodial-only model.

The discussion follows a Parliamentary Written Question raised by Liberal Democrat MP Lee Dillon and answered by Housing Minister Matthew Pennycook on 12 June 2026. In his response, Pennycook outlined the Government's rationale for exploring the removal of insured schemes, stating that the objective is to ensure tenant deposits are "as safe as possible".

What's the Difference?

Currently, landlords and letting agents can choose between two types of Tenancy Deposit Protection (TDP):

Custodial schemes – the deposit is held by the scheme provider throughout the tenancy.

Insured schemes – the landlord or agent retains the deposit while paying a fee to the scheme provider for protection.

Both models have operated successfully since tenancy deposit protection was introduced in 2007, providing tenants with access to independent dispute resolution and ensuring deposits are protected in accordance with legislation.

Why Is the Government Considering Change?

According to Pennycook, the Government believes custodial schemes offer greater protection because deposits are held by an independent third party. He also suggested that insured schemes can create a perceived power imbalance, as landlords or agents retain possession of the deposit during the tenancy.

The Minister further highlighted concerns around fraud risk and situations where agents fail to maintain insurance or Client Money Protection cover, potentially delaying reimbursement to tenants.

Government data also indicates that more than 95% of deposits held within custodial schemes are returned within two days of agreement or dispute resolution, while officials have suggested that some tenants experience longer waits under insured arrangements.

What Does This Mean for Landlords and Agents?

At this stage, no formal policy change has been announced. There has been no consultation outcome, impact assessment or confirmed timetable for removing insured schemes. Industry stakeholders have noted that insured schemes have protected billions of pounds in tenant deposits over the past two decades and continue to offer flexibility for landlords and professional letting agents.

However, the Minister's comments provide the clearest indication yet that Government is actively considering a custodial-only future as part of the wider reform of tenancy deposit protection.

For landlords, the key message is simple: stay informed. While nothing changes today, the direction of travel suggests further debate around how deposits are protected and managed in the private rented sector.

You can read the full Parliamentary response from Housing Minister Matthew Pennycook here: https://questions-statements.parliament.uk/written-questions/detail/2026-06-04/7013/