Rent Guarantee Insurance for Landlords

by Chris Horne

Landlords are watching with concern as the number of job lay-offs increase. All landlords are left to do is just hope that it is not one of their tenants. A period of unemployment means that many tenants will be unable to afford some of their largest outgoings. And unfortunately for landlords, one of their biggest costs is undoubtedly rent, and this is where landlords are very likely to suffer the 'fall out' from the credit crunch.

What happens if a landlord's tenant becomes unemployed? What happens to the tenant if they lose their job depends largely on the tenant's financial position. It should have no direct impact on the tenancy as long as the tenant continues to pay their rent.

However, the sudden loss of employment frequently results in financial hardship for the tenant and therefore a real concern for landlords who are liable for the continued payment of BTL mortgage payments.

Something has to give, and this often means that the tenant stops paying their rent to the landlord. Where an unemployed tenant wants to stay in a rental property and where a landlord is happy to retain them, this could mean a period of rental voids whilst the tenant applies for the Local Housing Allowance.

The safe route for a landlord would be to serve the tenant with a Section 21 Notice or Section 8 Notice if it is that the tenant is more than 2 months behind on rent , seeking possession of their buy-to-let property. Once a landlord has possession of their buy-to-let property they can re-let to an employed tenant.

However landlords might find that deciding to take possession of a rental property from a tenant who has just lost their job through no fault of their own, morally perplexing.

This situation leaves a landlord having to share the financial burden of their tenants misfortune. My only advice to landlords is to make the call that they see fit and this will depend largely on the specifics of the situation and their own personal view of their moral obligations.

It can all get very difficult both financially and emotionally especially if children are involved.

Can landlords take precautions to insure against this?

A landlord is not completely powerless against the prevailing harsh economic climate. One solution for landlords is to take out rent guarantee insurance. Some landlord insurance companies offer this as part of a landlord insurance policy or offer it as a stand -alone policy that can be taken out alongside an existing landlord insurance policy.

Insurance policies worth checking out by landlords

Rent guarantee insurance is becoming increasingly available to landlords and is often offered to a landlord by the company that carries out the tenant referencing. Landlord insurance companies frequently offer a rent guarantee as an additional package. There are numerous companies that offer tenant rent guarantee insurance to landlords.

How much should it rent guarantee insurance cost a landlord?

I recently sorted out a quote for tenant insurance on one of my properties. The cost for 12 months of cover tenant guarantee insurance on a property with a monthly rent of £500 was £99. This equates to 3.3% of the gross rent. In my view, not bad value for money if a landlord is genuinely worried about receiving their rent.

What should landlords look to get from their rent insurance policy?

I would suggest landlords look to get the following facilities from their rent insurance policy.

• Protection against rent arrears whilst the landlord insurance broker handles the claim • Legal cover - defence and prosecution • Covers all types of tenants who have successfully completed the tenant referencing • Cover 50% of lost rent for 3 months in between a successful eviction and a landlord finding new tenants

The final questions if whether as a landlord you can afford to survive long term rental arrears on the rental property, and if a landlords answer is no, then I would highly recommend that in the landlords seek rent guarantee insurance in these difficult economic times.

Source: http://www.goarticles.com/cgi-bin/showa.cgi?C=1555468