In short: the government is considering removing insured tenancy deposit schemes and leaving custodial protection as the only option. As of June 2026 this is a proposal, not law, so nothing needs to change overnight. But it does not reduce the duty landlords already carry under the Housing Act 2004: protect the deposit and serve the prescribed information within 30 days, or risk a claim of one to three times the deposit. Below is what the change means for your portfolio, and the sensible steps to take now.
The 30-second version
- Housing Minister Matthew Pennycook confirmed in a written parliamentary answer (June 2026) that the government is considering scrapping insured deposit schemes.
- That would leave custodial schemes, where a neutral provider holds the money, as the only route.
- It is a proposal inside a wider review, not enacted law. No migration is required yet.
- The underlying duty does not change: protect the deposit and serve the prescribed information within 30 days under the Housing Act 2004.
- This sits alongside the Renters' Rights Act 2025, which abolished Section 21 from 1 May 2026.
- If we manage your property, this discipline is already built into how we work.
What is actually being proposed
In a written parliamentary answer in June 2026, the Housing Minister, Matthew Pennycook, confirmed the government is considering removing insured schemes from the tenancy deposit protection system, which would leave custodial schemes as the only way to protect a deposit. His reasoning was direct: he said insured schemes create an "inherent power imbalance against tenants given the landlords and letting agents hold the deposit", and the government has pointed to a higher fraud risk in the insured model.
For nearly twenty years, landlords have had a choice. Under an insured scheme, you (or your agent) keep the deposit, pay a protection fee, and hold any interest. Under a custodial scheme, the provider holds the money as a neutral third party. The three approved providers, TDS, DPS and MyDeposits, have operated both models since 2007. The signal now is that the choice itself may go.
Why this matters for landlords, not just agents
Read this proposal alongside the Renters' Rights Act 2025, which already removed Section 21 from 1 May 2026, and the direction of travel is hard to miss: less discretion for whoever holds the money, more protection built into the system by default.
Here is the part that matters for your risk. This is a proposal, not law. You do not need to migrate anything tomorrow. What you do need to understand is that none of this softens the obligation you already carry. Under the Housing Act 2004, the deposit must be protected and the prescribed information served within 30 days of receipt. Get that wrong and a tenant can claim between one and three times the deposit, and a possession claim can be blocked. A custodial-only world does not relax that. If anything, it makes the timing and the paperwork more visible, because the scheme, not a private account, becomes the single record of where the money sits.
Three sensible moves to make now
1. Map your exposure. Pull a simple list of which of your tenancies sit on an insured scheme today and which sit on custodial. You are not migrating yet; you are sizing the job. If custodial becomes mandatory, the landlords who already know their numbers will move calmly while everyone else scrambles. Treat this as a half-day data exercise, not a project.
2. Tighten the 30-day clock. This is where the penalties actually bite, and it is scheme-agnostic. Whether insured or custodial, the deposit must be protected and the prescribed information served within 30 days of receipt. Check the process end to end: who logs the date the deposit lands, who serves the prescribed information, and where the evidence is stored. One missed certificate on one tenancy is a one-to-three-times-deposit claim waiting to happen.
3. Keep clean deduction evidence. Custodial schemes resolve disputes on the evidence in front of them. Dated inventories, check-in and check-out reports, and a clear paper trail are what protect a fair deduction at the end of a tenancy. Build that habit now, while it is still your choice and not your deadline.
How we handle this for managed properties
If we manage your property, deposit protection is not something you need to track. We register deposits in an authorised scheme, serve the prescribed information inside the 30-day window, and keep dated evidence for every tenancy, so a move to custodial-only protection would be a quiet administrative change rather than a compliance risk. The deposit choice may be on its way out. The deposit discipline is not, and it is exactly the kind of detail a good manager carries for you.
Frequently asked questions
Is custodial-only deposit protection now the law?
No. As of June 2026 it is a government proposal within a wider review of tenancy deposit protection, raised in a written parliamentary answer by Housing Minister Matthew Pennycook. Insured schemes remain available, and nothing needs to be migrated yet.
What is the difference between an insured and a custodial scheme?
Under an insured scheme the landlord or agent holds the deposit, pays a fee and keeps any interest. Under a custodial scheme the provider holds the money as a neutral third party. Both have operated since 2007.
What are a landlord's deposit duties right now?
Under the Housing Act 2004 the deposit must be protected and the prescribed information served within 30 days of receipt. Non-compliance can mean a claim of one to three times the deposit and a blocked possession claim.
Should landlords switch to a custodial scheme now?
There is no need to switch yet, but it is sensible to map which tenancies sit on insured versus custodial schemes and tighten the 30-day process, so any future mandatory move is a formality.
Want the deposit, the paperwork and the compliance handled properly, so a rule change is our problem and not yours? That is what end-to-end management is for. Let us look after the detail while you own the asset.
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