Landlord rent guarantee insurance

Rent guarantee insurance, also known as tenant default insurance, is a common type of cover you can add on to your landlord policy. It can protect you from the serious financial implications if tenants don’t pay their rent.

Rent guarantee insurance, also known as tenant default insurance, is a common type of cover you can add on to your landlord policy. It can protect you from the serious financial implications if tenants don’t pay their rent.

Tom Harrison
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13
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Posted 17 MARCH 2021

What is rent guarantee insurance?

Rent guarantee insurance is a type of landlord insurance which could cover your rental income, should your tenants be unable to pay their rent. Even the most reliable tenants can experience financial difficulties which can result in arrears. On average, it takes 42 weeks to evict a tenant; that’s around 10 months of lost rent during the time it takes to regain possession.

What does rent guarantee insurance cover?

As well as covering the rent, usually for six to 12 months, if your tenant defaults, a rent guarantee insurance policy could also cover:

  • Legal expenses and cover for any disputes relating to the recovery of rent arrears, repossession or eviction processes
  • Access to a panel of solicitors who can offer legal advice on a wide range of services, not just lettings

You’ll normally find limits on the amount of cover you can get, with both monthly and maximum limits not uncommon.

What isn’t covered by rent guarantee insurance?

It’s important to read the details of your policy carefully to check what’s excluded. There are a few common exclusions:

  • Deferral periods – you’ll typically find that you won’t be covered for the first month of rent arrears. You may also be unable to make a claim for a set period after taking out your policy. You should check details of any deferral periods before taking out insurance.
  • The defaulting tenant leaves – if you manage to evict the tenant who’s defaulted on their rent, or they leave willingly, your payments will normally end. This may be regardless of whether you’ve found a new tenant, so it’s important to check carefully.
  • You decide to sell the property - if you reach the point that you decide to put the property on the market, rather than try to find a new tenant, you’ll likely find that your rent guarantee insurance will stop paying out.
  • Types of tenants – you may find that insurance providers will exclude certain types of renters. For instance, people who are unemployed, are on state benefits, or students, may be excluded from your cover, as they’re seen as a higher risk for defaulting on their rent. You should also make sure that you get a tenant reference, when possible, as there may be exclusions for tenants who fail to provide one.
  • Commercial properties – if the property is used for business, you’ll need to arrange another type of cover.
  • Contract disputes – you won’t normally be covered for any legal costs if you and your tenant enter a dispute over the terms of your rental contract.

How much does rent guarantee insurance cost?

The cost of rent guarantee insurance depends on several things, some of which can affect the price of cover significantly. The type of property you’re renting out, with size and location being key, as well as the number and types of tenants you’re renting to, will all affect the rental income you normally earn. This, in turn, will affect the cost of your insurance, as you may need a higher or lower level of protection.

How can I protect my income if I can’t rent out my property?

Although landlord insurance policies vary between different insurance providers, most will offer optional cover to protect rental income. This comes in the form of both rental guarantee and rent protection.

Rental income protection could cover the amount of rent you would’ve received during an unoccupied period, if you’re unable to rent out your property for an insured reason. These may include incidents like flood or fire damage. This is separate, and should not be confused with rent guarantee insurance/tenant default insurance, which can protect you when a tenant is unable to make their rental payments.

Before you apply for rent guaranteed insurance, ensure:

  • You have a tenancy agreement in place and the tenants have been successfully referenced
  • Your policy provides sufficient cover - check the maximum number of months and the total value from which you can claim unpaid rent from your tenant

How much is the excess for rental protection policies?

The cost of excess – the amount you pay towards a claim – for rental protection is pretty much up to you. You can find policies with no excess fee at all, but this will naturally increase the cost of your premiums. Excess amounts can enter into the hundreds of pounds, so if you want to save on your premiums the excess is something you might want to look at, but it’s important you find the best balance for you. It’s great to get cheaper cover but, if your excess amount is too high, will it even be worth it if you need to claim?

Do I need a tenant reference for rent guarantee insurance?

We’d always recommend getting a tenant reference. You may find that you won’t be covered for tenants who default on their rent if they haven’t provided an appropriate reference before moving in. References reassure the insurance provider that the tenant is less of a risk.

Will I be covered for legal disputes with my tenant?

Contract disputes with tenants aren’t usually covered by rent guarantee insurance. If you need cover for this, you should arrange a separate landlord legal expenses insurance policy.

What other types of insurance can I get as a landlord?

Landlord insurance can include cover for many other things, including:

  • Buildings insurance – – this covers damage to the structure of the building and built-in features like fitted kitchens, wardrobes etc. This insurance can protect you against flooding, storm damage, subsidence, fire and more
  • Contents insurance – while your tenants may want to arrange this type of cover for their possessions, you should consider it to protect any furniture, carpets and curtains included in your rental agreement.
  • Unoccupied property cover can offer a replacement income while you’re in-between tenants.
  • Liability insurance can help you cover expenses if you’re taken to court because of your property.
  • Landlord home emergency insurance gives you 24/7 cover and access to emergency building services if your property needs urgent plumbing, electrical or heating work, or emergency work to secure it.
  • Legal expenses insurance can protect you for any legal expenses that you may face as a landlord. For example, the cost of taking a tenant to court over unpaid rent.

How can I compare landlord insurance quotes?

Just enter your details and we’ll show you a list of suitable quotes for rental insurance for landlords. Whatever extra rent protection policy you decide to add to your landlord insurance, make sure you read the terms and conditions carefully to make sure you get the right level of cover to suit your needs.

What to look out for as a landlord

Whether you’re already a landlord or you’re thinking about investing in your first buy-to-let property, there are lots of things to consider. As well as protecting your income, it’s important to think about the location of your buy-to-let property, how you’ll maintain it and how you’ll find the right tenants.

Finding the right location for your next buy-to-let property

Before buying a buy-to-let property, it pays to do your research to make sure it’s a good investment. As well as looking at property prices and rental income, it’s also worth considering how popular different areas are with renters.

To identify the best investment spots for landlords, we looked at average house prices and rent to work out average rental yield. Plus, we looked at Google search data for terms related to renting in selected places.

Based on rental yield alone, Scotland is the most obvious place to invest, as Renfrewshire, South Lanarkshire, North Lanarkshire, North Ayrshire and Fife are the five local authorities with the highest yield.

But none of these locations make the top five once search volume is taken into account, as Birmingham, Bradford, Coventry, Bolton and Burnley prove to be more popular with renters.

That said, Scottish local authorities claim four of the top five spots when it comes to increasing popularity, as searches for properties to rent in South Lanarkshire, Fife, West Lothian and North Ayrshire have more than doubled in the past two years.

At the other end of the scale, Kensington and Chelsea, Powys and Camden are the worst places to be a landlord based on rental yield, popularity among renters and increase in search demand. Unsurprisingly, given how high property prices are, more than a third of the 20 worst places to be a landlord are in London, which is something to consider if you’re thinking about investing in property in the capital.

As well as rental yield and popularity with renters, it’s worth doing some research into crime rates in the area and risk of flooding, as these factors can impact your landlord insurance premium.

On top of that, it’s also worth thinking about the type of tenants you’d like to attract to your property.

Finding the right tenants

Some areas are more popular than others with different types of tenants, whether that’s families, young professionals or students. There are pros and cons to renting your property to these different types of people, and tenant type can also affect the cost of your insurance, with professionals generally seen as lower risk than students, so think about who your ideal tenants are before you decide on a location.

To identify the best places to be a landlord to families, young professionals and students, we’ve taken the top 20 locations to be a landlord and added different ranking factors for different types of tenant.

Best places to be a landlord to families

Many landlords choose to rent to families because their tenancies tend to last longer, which gives the landlord some stability. Often families will choose their rental property based on catchment area for good local schools.

With this in mind, we’ve looked at the number of schools in each area and the percentage of them ranked as ‘outstanding’ by Ofsted to work out the best places to be a landlord to families.

Birmingham has the most schools by far, and Norwich, Bolton and Barnsley have the highest percentage of outstanding schools. But if you’re looking for all-rounders then Birmingham, Bolton, Bradford, Coventry and Norwich are the top five places to invest in rental properties for families.

Best places to be a landlord to young professionals

Young professionals can be attractive to rent to because their steady, permanent jobs mean they’re likely to pay their rent on time each month. Generally, this group looks for good transport links, modern, minimalist style and fast internet, especially with more and more people working from home.

To rank the top places to be a landlord to young professionals, we looked at BT Hub Wi-Fi hotspots – which are useful when people are out and about for work – and average broadband download speeds.

Cambridge, Birmingham and Renfrewshire have the fastest average broadband speeds, and South Lanarkshire, North Lanarkshire and Birmingham have the largest number of BT Hub Wi-Fi hotspots. But overall, Birmingham, South Lanarkshire, North Lanarkshire, Coventry and Cambridge are the best places to invest as a landlord to young professionals.

Best places to be a landlord to students

Student rent is often subsidised or covered by student loans, and student lets generally offer high yields. That said, landlord insurance can often be more expensive if you rent to students than to professionals as they’re deemed as “higher risk” tenants.

We’ve looked at the number of universities in each location, as well as the overall university student population and the average ranking of universities.

Birmingham has by far the highest number of students as it’s home to four universities, so demand for student accommodation is exceptionally high. Cardiff and Oxford have high student populations too, with two universities each.

When house price, average rent and monthly searches are taken into account, Birmingham is in the top spot and Cardiff comes in third, while Fife, Coventry and Exeter take the remaining spots in the top five

No matter who you choose to rent to, location alone won’t always guarantee you a tenant. It’s also important to make sure your property has tenant appeal.

How to make your property more attractive to tenants

From décor and cleanliness to space and eco-friendliness, there are things that can have a big influence on how attractive your property is to potential tenants. And certain aspects, such as the type of property and the size of it, can affect the cost of your landlord insurance.

We surveyed 2,000 renters to find out which property features are most appealing – and unappealing – to UK renters, and what people would be willing to pay more for.

The three biggest dealbreakers for renters

If you’re struggling to rent out your property, or you’re in the process of looking for a new buy-to-let, there are three things that are an absolute no-go for many tenants.

Mould is an issue that would stop 84% of people from renting a property. 76% wouldn’t rent a property if it had an unpleasant smell and 72% of people wouldn’t rent a property if the landlords were unfriendly.

Andrew Weir, Chief Executive of property company, London Central Portfolio, warns: "mould is always going to prevent a landlord from renting their property out to tenants. If this develops during a tenancy, there is a high risk that landlords would have to consider a rent reduction or have a tenant vacate the property, increasing void periods.”

If mould or smells are issues, there's no time like the present to get to work resolving them. Work out the cause and tackle the root of the problem. And make sure you’re doing your best to be a positive and friendly landlord.

These might be the three biggest dealbreakers, but there’s an array of other factors that can put renters off.

15 things about properties that put UK renters off

Certain property features – such as the type of property and how big it is – can impact your landlord insurance. But which features can affect someone’s decision to rent your property?

Lack of a shower is enough to put off 50% of renters – it’s particularly unappealing to people in Edinburgh. Single glazing is a no-go for 47% of renters, and no outdoor space would deter 45% of people.

Looking at the top 15 features that would put renters off, two big themes are lack of space and lack of modernisation.

“Avoid older HMOs (houses in multiple occupation) and refurb properties unless done to a good standard,” advises Dale Anderson, Managing Director of property investment company, Fabrik Invest. “Older houses come with a variety of potential issues, which could cost you in potential unforeseen service and repair costs.”

These are the features that put renters off, but there also a whole host of features that are hugely appealing to prospective tenants, and that they’re even willing to pay extra for.

The 20 most appealing property features for UK renters

If you’re looking for a new buy-to-let property, or you’re thinking about making some improvements to your current one, there are a few things you should pay special attention to.

Methodology

Best places to be a landlord – Google searches for ‘room to rent in X’ and ‘house to rent in X’ were sourced from Google Keyword Planner between November 2018 and December 2020. Average House Price and Average Monthly Rent were sourced from ONS, Gov.scot, Gov.uk and Stats Wales. Yield was calculated by dividing the average annual rent by the average house price. A weighted rank was used to determine the overall top 20.

This process was repeated for families, professionals and students.

  • For families – Ofsted, Education.gov.scot and Gov.wales were used as sources to determine number of schools and the percentage of outstanding schools.
  • For professionals – Ofgem and BT Wi-Fi were used as sources for average download speeds and Wi-Fi hotspots.
  • For students - The Complete University Guide and official university websites for each local authority were used as sources.

Features that attract/deter renters – Censuswide survey of 2,000 renting adults across the UK in December 2020

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