The risks and the nightmares are many and varied; the main perceived worry is the tenant not paying the rent – and this does not just apply to tenants on benefits, anyone can lose their job, overspend or simply decide not to pay – but as all letting agents will know, it doesn’t stop there.
Cannabis factories spring up in quiet residential streets, rubbish bins are stolen, so tenants simply leave their waste in a basement and then complain about rat infestation. Other tenants sub-let rooms so that a three bedroomed house is inhabited by 15 or so people, with little care or understanding about ‘home management.’
Just three ‘risks’ among dozens. But Buy to Let is, once again, booming. Changes to pension rights will, inevitably, draw more innocent people into the joys of letting, which is a good thing, as there is demand to be met, but will these new landlords know what they are doing?
The latest research from LV (Liverpool Victoria) found that one in 20, or seven per cent of British adults now rents out a property and 32 per cent have, at some point, had their property damaged in some way, with the average repair bill being £1,200.
That means that 68 per cent of landlords don’t have any problem, doesn’t it? The problem is, and this is the whole basis of insurance of course, that you don’t know whether you’ll be in the lucky sector or the unlucky sector. Risk limitation helps, (once you understand the risks) and balancing risk against profit is another lesson in becoming a successful landlord. However, many of the risks simply aren’t even considered by novice landlords, keen to make their fortune as a property magnate, and this is where the professional letting agent matters.
32% of landlords have, at some point, had their property damaged, with an average repair bill of £1200.”
GET THE MESSAGE ACROSS
Michael Portman at LetRisks says that, “It is accepted that letting agents have a duty of care to ensure that landlords are aware of the risks involved in letting property,” and this is a great opportunity for agents to help landlords understand the business and do everything possible to safeguard their investment through the appropriate insurances. The big question is, why doesn’t every landlord do that? Is it because they won’t spend the money or is it because agents actually don’t make them aware of the risks and the options?
Agents have choices in how they provide insurances. Michael adds, “The percentage of landlords taking out buildings and contents insurance through their letting agent will depend on whether the agent is authorised to sell insurance under Financial Conduct Authority (FCA) regulations.
LetRisks provides two solutions: either the agent becomes an Appointed Representative and arranges insurance themselves on behalf of their landlords via our quote and buy website, or becomes an introducer and refers landlords to the LetRisks sales team.
Steve Jones at Rentguard says that a recent study by AXA estimates that as many as one in four (400,000) residential landlords in the UK have the wrong insurance, or no insurance at all – leaving themselves and their tenants at risk. “Around three quarters of these are thought to have bought personal household insurance instead of a specialist landlord policy, leaving them vulnerable to having any claims turned down. It is important that landlords have specialist buy-to-let property insurance and don’t rely on their home insurance, as this will not cover any damage caused by tenants living in the property.”
Julie McMullan, Head of Insurance at Barbon Insurance Group says that HomeLet has found that when landlords do contact them for insurance the take up is extremely high (once they have been appraised of the risks.) “Often landlords don’t realise the risks – for example, they could be liable if a tenant tripped on a loose stair carpet, or burned themselves on a faulty cooker. They could also be liable if they employed a gardener who injured themselves while working at their property.
These are risks that standard home and contents insurance simply wouldn’t cover.” HomeLet’s most popular product for landlords is the Landlord Insurance+ product; a flexible product which offers buildings and contents insurance, for furnished or unfurnished properties.
Extras such as boiler cover, rent guarantee and legal expenses can be added, as can malicious damage and accidental damage cover.
Let Alliance only sells its insurance products through agents, not direct to landlords and has made strenuous efforts to get agents to educate their landlords on the benefits of rent and legal expenses insurance, Andy Halstead, CEO, says, “Around 65 per cent of every new let results in the landlord benefiting from rent guarantee and legal expenses through our partner letting agents, the norm is less than 20 per cent.”
Interestingly, a growing number of Let Alliance partner agents provide this specialist product as part of their fee structure, Alex Kemp, of Temples is one of them, he says, “We have two fee rates, 11 per cent or 12.5 per cent including Rent Guarantee – since we started providing the cover this way, almost every one of our landlords has taken it up.”
Rentguard’s comprehensive cover for landlords takes care of all of the common risks that they encounter and offers loss of rent of up to 30 per cent of the building sum insured, says Steve Jones, “However, we use a range of different underwriters and offer the policy with the specifications that match that individual’s needs the closest. For example, some landlords may want increased contents cover, or longer unoccupancy periods, which we are happy to cater for.”
LetRisks offers a similarly flexible choice of policies to cater for all landlords. “Our comprehensive landlords buildings and contents policy includes legal expenses, home emergency assistance (to cover emergency call outs), malicious damage by tenants as standard, and the option to include rent guarantee.”
CATASTROPHES AND CLAIMS
The prevalence of claims for any one risk varies as much as the products, but in terms of volume, ‘escape of water’ is the most common claim. Water wreaks the most hideous damage, seeping quietly through ceilings, bursting through frozen pipes, gushing in floods from high tides and prolonged rain. Michael Portman says that nearly two thirds of their claims overall come from either storm damage and internal water leaks and Steve Jones agrees, citing faulty or poorly serviced boilers and freezing pipes.
Slightly less common but more expensive to fix is fire damage, then storm damage and then malicious tenant damage – which includes those dreaded cannabis farms and drug dens – and tenants smashing up the property after not paying rent and finding themselves facing eviction.
Let Alliance’s Rent Guarantee product is backed by its ‘Ultimate’ reference, which prevents rather than cures so their claims frequency is just 1.3 per cent. It is so important for landlords, says Andy, because the average claim is four months’ rent plus legal expenses and costs of £700. “When the tenant fails to pay the rent it is expensive for landlords unless they have protection, on average £3500 is lost per failed tenant.”
Some suppliers offer a comprehensive Landlord’s insurance policy, others offer separate products, and some will bolt on extra cover to a basic policy – this makes it a bit of a mission for landlords to decide which to take, so again, the agent is best placed to explain the relative risks.
- Comprehensive Landlord’s policy
- Landlords Buildings and Contents
- Landlords Limited Contents (suitable for flats)
- Legal Expenses and Rent Guarantee
- Commercial Property (or mixed Residential/Commercial lettings)
- Blocks of Flats
- Emergency Assistance
- Malicious Damage
Let Alliance has just launched a brand new product range which is available to landlords only through letting agents.
HomeLet has been awarded a 5* Defaqto rating for its Landlord Insurance+ product, and a new service enables customers to compare HomeLet products to others on the market via on online tool on their website called HomeLet Compare.
Rentguard has recently added cover for malicious damage caused by tenants, as well as cover against acts of terrorism and they now cater better for bedsits and HMOs and mixed tenancy types. A new product is Property Refurbishment Insurance, a policy dedicated to covering landlords during a period when they are renovating, refurbishing or extending their properties.
LetRisks took notice of the recent Court of Appeal case where the landlord of a single flat was liable for an injury to the tenant that was sustained outside the block of flats, on a path to the communal bins, so they are now carrying out risk mitigation reviews with agents to protect their liability and offering discounted insurance for landlords of individual flats.
The products are many and various, just like the risks, so taking time to understand the benefits to the landlord and to you as agents, is very worthwhile, bringing a better service, less trauma when things go wrong and an additional income stream.
Hamilton Fraser www.hamiltonfraser.co.uk
Let Alliance www.letalliance.co.uk