LANDLORD RENT INSURANCE


As the recession bites many landlords are starting to feel uneasy that their tenant’s will not be able meet their monthly rental obligations.

With the economic gloom, high cost of energy, food and fuel many landlords are complaining that tenants are defaulting on their rental payments. This could be as a result of job loss, relationship breakdown or just an inability to meet the rent.

Over the last 12 months, the National Landlords Association reports that 74% of calls to its helpline are from worried landlords seeking advice on how to deal with tenants who cannot afford to pay their rent.

This is backed up by statistics from the Council of Mortgage Lenders, that reveal by the end of 2011, 2.32% of buy-to-let mortgages were more than three months in arrears.

But when rental income is vital to covering a landlord's own buy to let mortgage, non-payment poses a huge risk to their business.

While there is no hard evidence to suggest that the recession will be over anytime soon, the good news is that there are steps a landlord can take to protect themselves and their business against rental arrears:

Your first plan of action should be to take out rent guarantee insurance. This lesser-known insurance policy is designed to limit the risk of financial loss if your rental income is not paid.

Rental guarantee insurance policies vary greatly among providers, but share a few typical features, which include:

This policy only pays out for a maximum fixed period of 6 or 12 months.

It is not possible to get protection for a let property until the initial month's rent and dilapidation deposit has been paid.

You will need to let a property under an assured short-hold tenancy, a short assured tenancy or an assured tenancy.

Some policies charge a premium established on the amount of rent covered, while other insurances charge a fixed price per tenancy agreement.

Rental payments are covered during the insured period, usually with an upper limit on the amount which can be protected each month and overall during a claim.

There is likely to be an excess which means you may not be covered for the first month's rent.

Rent will be covered until the policy finishes, or the tenancy agreement ends, or you gain vacant possession of the property so it can be re-let.

Some policies may partly cover rent for a limited period even after possession of the property is obtained.

Legal expenses insurance can be included which covers the legal costs incurred in proceedings against tenants if the situation becomes serious.

Some insurers may deal with the tenant eviction process on your behalf.
Providers will require each tenant named in the tenancy agreement is credit checked and relevant references are obtained. You will need to provide proof that this has been done.

This premium is a tax deductible expense.

Read the small print exclusions

It is absolutely vital to read the small print of on your rent guarantee insurance policy before signing on the dotted line. Insurers tend to have their own rules when it comes to recovering rental arrears from a tenant, one wrong step and your claim could be turned down so know what you are dealing with from the start.

There may also be a period of time from the start of the policy when a disagreement with your tenant is excluded. For example, you may not be able to claim for the first 90 days. So read the small print and gem up on the rules.

It is worth bearing in mind that you may well be able to recoup rental arrears through the normal legal channels eventually, so it is worth giving serious thought as to whether or not you truly need this kind of insurance policy.

On the other hand you may think paying 3% or so a year for a policy seems a small price to pay for the peace of mind of covering your rental income for six or 12 months and to provide legal protection if there is a problem.

It is essential that you do not run into arrears with your mortgage simply because your tenant has failed you. And if a rent guarantee insurance policy enables you to do that, then it is well worth signing up for.

Even if you do sign up for rent guarantee insurance, it pays to always have an emergency nest egg on hand to fall back on should rent dry up for whatever reason.

‘Rental guarantee insurance might not be as expensive as you first thought,' says buy to let expert Lee Grandin: ‘As a general rule of thumb, premiums start at less than £100 per year and they are tax deductible.

‘The drawback is the red tape to gain the insurance; including looking into your tenants’ rental and financial background, and as a result, you may find that some tenants are not eligible for cover.

‘Also, you will need a written reference from your tenants’ previous landlord and current employer – which seems logical and possibly something you already do.

‘However, your tenants will also have to pass a professional credit check. This is recommended to prove that they are a good tenant or that they can keep a job for the duration of the tenancy, no easy task in this current economic climate. In these circumstances, it is a good idea to speak personally to the employer providing the reference.

‘Always ensure any rental protection insurance (otherwise known as tenant default insurance) that you look at provides sufficient cover as polices can differ widely.
Most polices will cover the legal costs of recovering rent arrears and evicting non-paying tenants',
adds Grandin.

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