Collecting rent on time is essential for a successful landlord. On behalf of Just Landlords, Rose Jinks explains the benefits of rent guarantee insurance.
It’s no secret that a standard home insurance doesn’t offer loss or damage protection to properties that are rented out. To cover your letting assets adequately, a specialist landlord insurance is required. However, simply keeping a property in good condition is not the only element of a landlord’s success – receiving regular rent payments is just as vital. That’s where rent guarantee Insurance comes in.
Unlike basic landlord insurance, which protects the physical property, a rent guarantee policy is ‘a peace of mind’ cover. By opting for rent guarantee insurance, which is often combined with legal expenses cover, landlords can be sure that they would get paid even if their tenants fell into rent arrears. Meanwhile, the legal expenses part of the insurance covers any legal costs incurred during a legal dispute with tenants.
Why it’s essential
It would be fair to say that rent arrears are every landlord’s worst nightmare; if a tenant withholds rent, this can immensely damage a landlord’s business. For example, buy-to-let investors could be likely to have monthly mortgage payments which they fund through their rent income. Similarly, those with large property portfolios will likely need to put significant contingency funds in place for regular maintenance and unexpected repairs.
While landlords may have procedures in place to chase any late or lost rent, it’s clear that even just one month’s arrears can disturb your balance sheet, causing a decline in rental yield and possible mortgage arrears on your part.
Putting rent guarantee insurance in place for each tenancy can ensure that you continue receiving rental income during the period of arrears and, when legal expenses are included on the policy, can also cover the eviction costs incurred through the courts. As this can be a lengthy and costly exercise, having cover in place to protect your pocket can ensure that the damage on your business is minimal.
Recent research by a specialist student-only lettings portal even suggests that it can cost landlords up to £2,000 and take around nine months to evict a tenant – and this doesn’t include the cost of missing out on rent. However, rent guarantee insurance shouldn’t be an excuse for landlords to become careless in their tenant vetting.
Policy conditions
All prospective tenants should be subject to referencing, including credit checks, employer’s and previous landlord’s references, and the legally required Right to Rent checks. Before taking out a rent guarantee insurance policy, landlords must check whether these references are conditions of the insurance.
At some companies landlords are expected to conduct these essential checks, as reference checks are a standard way of exposing any underlying issues with prospective tenants. Nevertheless, even the most dependable renters can sometimes fall on difficult times. This is why it’s important to consider having Rent Guarantee Insurance in place.
Current economic climate
As affordable rental properties continue to be in short supply, recent Government proposals, particularly the banning of the letting agents fees, could create additional financial constraints for landlords and their tenants. If the ban comes into force, it is expected that the fees will instead be charged to landlords; thus, investors are expected to increase their rents to cover the added costs.
Under such turbulent times in the lettings industry, landlords should be more cautious with their income than they’ve previously had to be. This includes protecting their rental income with a rent guarantee insurance. This is especially suitable for landlords that self-manage their portfolios, as chasing tenants for rent arrears or evicting them can be even more difficult without the help of a letting agent.
Guaranteed rent schemes
Despite the name similarities, rent guarantee insurance and guaranteed rent schemes are two very different things. You may have heard of schemes that guarantee your rental income for a period of time through investing in one of their properties.
However, this is not the same as rent guarantee insurance. Rent guarantee insurance is a policy that you take out per tenancy agreement – it is a cover that ensures you get paid if your tenant stops or cannot afford to pay the rent. Guaranteed rent schemes, on the other hand, require investment in certain properties in return for guaranteed monthly payments.
While this may sound like a safe decision, a thorough research into the scheme is highly recommended as landlords risk becoming stuck with tenants in their properties without getting rent if the scheme goes bust. Protecting your rental income is vital for any landlord and getting caught out if your tenants fall into rent arrears can be avoided by taking out a rent guarantee and legal expenses insurance.
Just Landlords is a specialist landlord insurance provider