Demand is high and prices are up and for Landlords, this could be both a blessing and a curse. On the one hand, with such an in-demand market, finding tenants for your property should be easy. On the other, the current economic climate has made it harder for tenants to be able to afford rent payments and has set existing landlords on edge as to whether they can rely on rent payments. From the rise in the cost of living to changes in interest rates making mortgage payments often unaffordable, both landlords and rental tenants alike could be facing a rough year. With Rent Guarantee Insurance back on the table, however, you might be wondering whether it’s worth the additional cost, and if it can actually help – we’ve put together a guide to help you decide.
What Is Rent Guarantee Insurance?
Rent Guarantee Insurance is very much what the name suggests – a guarantee of sorts for landlords that they will receive rental payments, even if a tenant is to fall into arrears. If a tenant is unable to pay their rent or is behind on their payments, rent guarantee insurance provides landlords with the protection needed to ensure that they aren’t left without income themselves. These policies are typically an add-on to standard Landlord insurance, providing extra protection at an additional cost.
What Does It Cover?
Rent guarantee insurance is often confused with Loss of Rent insurance, which is an entirely different product, Where Loss of Rent cover provides compensation in cases where a landlord misses out on rent due to an insured event, such as flood, fire or damage that requires tenants to move out, Rent guarantee insurance is designed to protect landlords against cases where tenants have not paid their rent due.
The protection Rent Guarantee Insurance provides ultimately depends on the policy you have and the terms stated when you take it out. Typically, you will have an agreed period of time over which you can claim the missed rent, and usually, terms and steps you have to follow first. For example, contacting the tenant for the reason behind lost rent, as well as thorough credit and reference checks before you take on the tenant can often be requirements. Some policies may also require you to have taken and protected a deposit. Most providers will allow you to claim for arrears up to a certain duration of time, usually 6 or 12 months, as well as claims for legal fees if you have to take the tenant to court.
The State Of Renting In 2023
The housing market, whether that’s renting or purchasing, is a tricky one to navigate in 2023. Landlords are under increasing pressure from their mortgage lenders, while renters are struggling to find tenancies within their given budgets. It’s suspected that this will only get worse.
With almost double the households privately renting compared to the past two decades (currently over 5 million), this is a sector that remains in high demand despite the costs. Average rents are up 10.8% (Dec 22) and single tenants are expected to be paying around 35% of their income on rent alone in the current economic situation. Demand and cost of living work together to create a perfect storm, ultimately leading to the rental market nearly reaching a breaking point where demand can’t be met and costs can’t be comfortably reached.
For landlords, this puts them in a sticky situation – they need to raise rents to cover mortgage and maintenance costs while maintaining a sensible profit, but too high and tenants will struggle to pay the rent given. While credit and reference checks will help you ensure that your tenants remain able to afford your property, having rent guarantee insurance does protect you in cases where they may fall into arrears unexpectedly.
Should I Take Out A Rent Guarantee Policy?
As a landlord, you need to protect your assets as well as your tenants. Rent guarantee insurance provides you with the peace of mind that you remain financially protected even if your tenant falls into hardship and is unable to reach the agreed rent cost. If you’re unsure if you should take out a rent guarantee policy, consider the following:
- Do you rely on rent payments? – If you rely on rent payments for your own income or use them to pay off the mortgage on the property, having protection in place will ensure you don’t fall into arrears with your own financial obligations.
- Are they new tenants? – If you’re taking on new tenants, even if you’ve run credit and reference checks that have all come out as good, having extra protection can protect you from any mishaps.
If you’d like more information about rent guarantee insurance, or a personalised quote for your properties, we are on hand to help. Simply get in touch with Ashburnham Insurance for free on 0800 1696137.