Many private landlords are finding that the government is encouraging tenants to stop rent payments for three months. Those same tenants however expect landlords to continue making repairs to fixtures and fittings, as well as the structure of the property itself, whilst receiving zero income.
For those landlords using letting agents to collect rent and pay a Buy-to-Let mortgage the situation is even more stressful, as many letting agencies are closed and few phone calls or emails are being dealt with promptly. In any case, how can letting agents enforce rent collections in the current political climate?
For insurers, the question of coverage is simple; it must continue. But the reality of dimishing – or deferred – rental incomes must be addressed at some point. Here’s GlobalData’s take on it.
According to GlobalData’s 2019 UK Insurance Consumer Survey, 13.4% of respondents rented their main residence from a private landlord. Additionally, 57.5% of homeowners letting out their properties had a specific landlord insurance policy in 2019. Only some of these policies will have rent guarantee add-ons though, enabling landlords to claim for rental payments in the event that tenants fail to make these. However, the coronavirus outbreak has left many of these landlords in limbo.
Rent guarantee add-ons are an invaluable feature for landlords paying off the mortgage on a property, as well as those that have tenancy agreements with individuals that are more likely to default on their payments, such as the freelancers or the self-employed.
Beatriz Benito, Senior Insurance Analyst at GlobalData, said: “Rent guarantee add-ons are intended to bring peace of mind to landlords. As the coronavirus pandemic spreads around the world, more and more individuals are losing their jobs.”
The UK Government recently announced that landlords will not be able to start eviction proceedings in a court against tenants failing to pay their rent without giving them at least three months’ notice, with emergency legislation dictating this initially until September 30, 2020. Typically, insurers will pay default rent payments if the tenant has not paid rent for 30 days and an eviction notice has been issued, so it is difficult to claim for this.
Landlords in this circumstance are likely to question what the advantage is in them holding a rent guarantee policy if they cannot make – at least temporarily – a claim when they most need to.
Bentio added: “To avoid customers canceling their policies, insurers should devise plans to offer added-value services. For instance, insurers can offer support to clients with regards to reaching alternative agreements on longer-term rent schedules with their tenants, in addition to offering them legal advice if possible. Insurers could also offer lower premiums – or premium breaks altogether – during these unprecedented times. Insurance is an industry with low customer trust, and failing to engage with and offer assistance to clients during these times will only worsen perceptions.”
The long term result of all this is that many small scale landlords will seek to exit the market completely next year, even if house prices fall. There is a huge question mark over rent guarantee insurance (RGI) now as well, as insurers delay on paying out on hundreds of thousands of claims. Just like travel insurance that covers contagious diseases, RGI will soon be in the Insurance Musuem of Unworkable Products.
What is the future then? There is little chance that the government or councils will want to see evictions in the next 12 months, as the political backlash is too strong for any party to centend with, yet eviction is ultimately the ONLY sanction which forces some tenants to pay the rent, in full, every month. Landlord insurance is likely to be a much more specific, named risk product in future, covering things like fires, floods and neglect/vandalism by tenants – everything else is on the landlord’s own head.
As deposits are capped by law, the landlord faces huge losses if tenants default on rent, or damage the property and it takes six months to evict them. Property was once an alternative pension plan but many landlords are going to discover that in reality it is more a case of unpaid social work and debt management in certain cases.
The solution is obviously more social housing, but it is debatable whether the public sector has the willpower, or the financial firepower, to acquire a significant percentage of private rental properties and manage them effectively. Building more social housing to meet demand is simply not going to happen either, councils prefer other vanity projects for their borrowed cash.
It is going to be a rocky road ahead for buy-to-let investors.