Rent guarantee insurance: what you need to know
With the number of renters in arrears rising significantly during the pandemic, along with the number of rogue tenants successfully securing tenancies using fraudulent documents, it's more important than ever for landlords to safeguard their investment with additional insurance cover.
Our quick guide provides all the key information you need to know about rent guarantee insurance and how it can help save you from financial woe.
What is it?
Rent guarantee insurance protects landlords against loss of income if a tenant defaults on their rental payments. Most policies also include cover for legal expenses and the costs incurred during repossession of the property. While there is no legal requirement to hold rent guarantee insurance, we strongly recommend taking out a policy. The annual fees are relatively low, and more than worth it given how quickly costs can mount if your tenant falls into arrears.
Why do I need it?
We recommend that all landlords safeguard their rental income regardless of circumstances. However, rent guarantee insurance is particularly invaluable if you depend on rental income to pay for your mortgage and cover your outgoings. Even the most reliable and thoroughly vetted tenants can fall victim to changes in circumstances that render them unable to pay rent. While robust referencing processes are effective at minimizing the risk of non-payment, if you rely on rent to make ends meet why not eliminate the possibility entirely?
It’s also worth considering a policy with legal cover. Evicting a tenant is a protracted, expensive process. Eviction proceedings can last the better part of a year even in normal circumstances, but the lead time is currently even longer due court backlogs and the amended notice requirements introduced during the pandemic.
On average, it can cost between £2,000 - £3,000 in fees to legally evict a tenant. Potential charges include*:
- £120 to serve notice (or £180 for a non-rent related Section 8 notice).
- £925 for a Section 21/8 Accelerated Procedure.
- £108 if a claim is for arrears exceeding two years.
- £300 if you are unable to attend the court hearing in person.
- £300 to apply for a warrant of execution and a County Court Bailiff.
- £860 to obtain an order to transfer up to the High Court and apply for a High Court Bailiff.
When lost rental income is factored in, the potential costs run into the thousands. Rent guarantee insurance minimizes your risk of exposure should the worst case scenario come to pass.
Who is eligible?
All landlords using an AST are eligible for rent guarantee insurance providing the following criteria is met:
- Adequately robust referencing must have been conducted with the tenants (and any guarantors) prior to letting the property. This will normally have to include a written reference from the tenant’s previous landlord/managing agent and employer.
- Credit checks on the tenants came back clear.
- The deposit taken prior to the tenancy is registered with a government-backed protection scheme.
We offer landlords who let with us rent guarantee insurance through our trusted third party provider at competitive rates for monthly and annual coverage. Get in touch with us today to find out more about our policy options and safeguard your rental income.
*Representative fees based on the average of all major service providers.
At Home Made, we have a hybrid lettings solution that adds value at every stage of the rental process. With our proprietary technology and data-driven marketing processes, we can help you to achieve higher rental yields and significantly lower operating costs, while taking every possible step to ensure that any renter we put forward for a tenancy is right for your property.
Our median time-to-let from point of listing is just 8 days and our clients save an average of £2,300 per tenancy with us. We charge 3% plus VAT for tenant-find services, 4% plus VAT per month for full management services, and there are no fees for renewals. For more information on our services, visit our landlord page.
If you would like to speak with us about your property needs, contact us via our website to find out how we can help. If you're ready to get started, book your free valuation here.
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