Landlords Insurance and Buy to Let Insurance -What You need to Know

Letting out a property involves a higher insurance risk than is the case with a standard domestic (i.e. non–let) property. Policies vary greatly in terms of cost and the level of cover provided, so it’s important to check what’s covered in some detail and to carefully compare policies.
Firstly, a few obvious things! Before taking ownership you must arrange to have the buildings insured. If you’re getting a mortgage, your lender should insist that a suitable policy is in place, and will ask to see proof of the policy and be noted as an “interested party.” For flats, the insurance will normally be arranged by the freeholder.
The more specialist buy-to-let mortgage companies and most of the landlords’ associations have specialist home insurance policies designed with the landlord in mind. Members of landlord associations like the National Landlords Association and the Residential Landlords Association may also expect to get a discount of 10-20% on the premiums.
Some letting agents and most insurance brokers also offer cover and internet will show up a list of insurance companies that can provide insurance for let properties.
In my experience I’ve found the cheapest and best specialist landlords insurance comes from commercial brokers. Typically I have found that the premiums from the likes of Alan Boswell are about 15% cheaper than the standard policy available from mortgage lenders. http://www.alanboswell.com/landlords_insurance/
So, don’t ever just accept the mortgage lender’s policy, shop around.
If you are only providing a limited amount of furnishings and don’t want to go to the expense of getting a separate standalone contents policy, get a buildings insurance policy that include just a small amount of contents cover.
Key components of landlords cover should include cover for loss of rent, temporary accommodation and storage of furniture following fire or water damage. Usually these things will be included, but it’s worth checking anyway. Your cover should also include public and employers liability up to at least £5m. This is essential and is normally included as standard even in domestic home insurance policies. But, again, check that it’s covered because even if you just pay a friend to do a job for you, they will become an employee in law!
I also like those with a 24-7 emergency assistance feature, especially one which covers the cost of a call out to deal with an emergency. If you aren’t handy yourself or live in an area with expensive plumbers and the like, these can be really worth getting because the insurer will send out their emergency tradesmen to do an initial fix, sometimes with the cost covered (up to a certain amount.)
This will also save you having to buy a separate emergency cover policy. Ask about service standards - i.e. how quickly they will be on site to do the fix - because if say, you have a flood, you want the problem dealt with that day, not next week!
Spend time checking the policy exclusions too. In particular look out for policies that don’t cover students, people on housing benefit, asylum seekers, short term lets or properties let to social landlords such as housing associations or local councils. Be aware that most policies will insist the property is let on an assured short hold tenancy.
Your tenancy contract must insist that tenants tell you if a property will be unoccupied for more than a short period - typically up to 14 days – because most insurers will insist on being told and will throw claims out if the property has been unoccupied without them being told.. Your tenants should also be told how to turn off the water and gas in an emergency and how to drain down the water when away for a long time.
In general, where the insurer perceives the risk is higher, they will often still cover it, but charge a higher premium, insist on a higher excess or exclude certain risks altogether.
Unfortunately, malicious damage by tenants is usually not covered, even under special landlords’ buy to let policies. So even if you end up hating the tenants, don’t do anything that may lead them to trash the property as you won’t be able to recover the money from your insurer!
Nervous first time landlords with big mortgages to pay, might like to consider a rent guarantee policy which will pay rent if the tenant defaults. Typically they cost about 3-4% of the rent and pay for up to 12 months, although they usually don’t kick in until 2 months rent has been missed, and they require you to take certain steps before a claim will be entertained. One of these will be to hand over the eviction process to the insurer’s lawyers. If you buy a rent guarantee policy, check whether it also covers the cost of legal expenses to evict the tenant.
Deductibles (or excesses) on a specialist landlord policy vary from about £100 to £250 for normal claims though it’s normally £1,000 for subsidence claims. Landlords with flats should bear in mind that block buildings policies tend to have higher standard excesses ranging from £250 to £500 with no contents cover extension at all, so your carpets and curtains will be at risk if you don’t have separate cover. If you have a flat, it’s always worth asking to see the block policy document and schedule to check what you are covered for.
Tenants should be told that you, as their landlord, are not responsible for any accidental damage that they do, nor for damage to their own possessions whatever the cause. I always make this clear in writing and advise my tenants to take out contents cover for their own possessions and ensure their policy includes accidental damage cover too.
Most domestic insurance policies do not cover rented property at all so if the property used to be your home, tell your insurer the property is being let and ask if they provide a suitable specialist landlord policy. If they can, check it against cover from other providers too.
If and when you make a claim, keep a record of the amount of the date of claim and how much it was for. When you take out new insurance, the insurer will ask for information on previous claims so it’s good to have this info to hand.
Most home insurance policies won’t pay for replacement taps, toilets or boilers, though they usually pay for “trace and access” to find the source of a leak. So, if your plumber or boiler repairer is doing a job which involves tracing the source of a leak, it’s worth asking him to “trace and access” on his invoice.
Keep your tenant informed and involved. They should give you access to fix things, but don’t enter without their consent, except in an emergency. If they have to move out whilst things are being redecorated, reimburse them the rent for that period, then reclaim the cost from your insurance company. Finally, keep a record of all quotes obtained and of all correspondence - written or verbal - with your insurance company.
Copyright: David Lawrenson 2007. This blog is updated about three times a week.
We are the UK’s leading provider of independent advice about residential property investment www.lettingfocus.com a buy to let expert with a difference. What’s different is that we are unbiased, because unlike most people in the buy to let and property advice business we are not linked to a developer, agent or finance company. We just tell you all about buy to let and property investment - the good and the bad.
Our owner, David Lawrenson, is the author of the UK’s top selling buy to let book (and the highest selling property book at Amazon.co.uk). He is a respected speaker, authority and consultant on residential property investment.
He runs sensibly priced seminars and a one to one telephone based consulting and coaching service. Find out more at the main site: www.lettingfocus.com

Avoid Buy to Let in Emerging Markets

At all the property events I go to, I always see lots of nice models of far away places where developers are going to build lots of posh apartments right next to the beach.And yes, of course they look very nice.
And they are cheap too (at least compared to UK prices.)Some writers in the press may also have written favourably about them too (though bear in mind that some do enjoy paid for trips to see these places and have advertisers from the development at “Cape Sunshine” to please who wouldn't be happy if the piece were to say what a lousy investment it will be.)So what should you, the investor do?Well, read my book for a start! But if you are too lazy to do that, and you do nothing else, you must find out what else will be built near to that development.The reality is that in many emerging markets, land is cheap and governments and locals are keen to sell lots of it to Western companies.This means your apartment will end up competing with a host of others to be let out.So, if you do buy abroad, buy in areas where the local market will not be flooded by other investors. Stick to in inner cities with strong rental markets or find coastal areas or where rampant development is prohibited - this will usually mean sticking to well developed markets.
Copyright: David Lawrenson 2007. This blog is updated about three times a week.
We are http://www.lettingfocus.com/. What’s different about us is that we are unbiased, because unlike most people in the buy to let and property advice business we are not linked to a developer, agent or finance company. We just tell you all about buy to let and property investment - the good and the bad. Our owner, David Lawrenson, is the author of the UK’s top selling buy to let book (and the highest selling property book at Amazon.co.uk). He is a respected speaker, authority and consultant on residential property investment.
He runs sensibly priced seminars and a one to one consulting and coaching service. Find out more at http://www.lettingfocus.com/

Buy to Let - Where and What to Buy in the UK

Apart from the need to avoid buying flats in Northern English towns like Leeds and Manchester - which are ludicrously over supplied with buy to lets already - people interested in getting into buy to let should in general go for 2 or 3 bed terraced houses with gardens as these will appeal to a wider mix of tenant types. They will rent faster.
In terms of areas, London whilst expensive should continue to do well. Rental demand remains strong here and rents are going up quickly. However, yields are stretched currently – and you would do well to get a net yield over 4% but as more people are renting and as rents continue to go up, this should improve and I don’t see house prices falling heavily here.
I also think that attractive coastal towns in Kent will benefit from improved transport infrastructure and will see prices go up. Just don’t expect great yields here because the rental market in thin due to lack of tenants and low employment levels. However, once discovered by second home owners and commuters (better rail links coming), these places will see house price growth.
On a general level, as ever, the lack of supply of property and the continued unending increase in population due to migration will push rents and house prices up long term. Sadly, lots of novice landlord will still manage to get it wrong by buying flats in areas that are either already or soon will be over-supplied by too much stock trying to chase too few tenants.
At the end of the day it’s about supply and demand!
I’ll be speaking about where to buy and what to buy at my event in London on 16th July. Click here for more information: http://www.lettingfocus.co.uk/enews/enews.html
David Lawrenson is the author of “Successful Property Letting.” Go to the main website at www.lettingfocus.co.uk Copyright: David Lawrenson 2007.

How Can I Find a Good Mortgage Broker? - A Guide to Using Mortgage Brokers Part 3

11th June 2007. In the third and final part of this blog on mortgage brokers, I’ll look at whether the commission fees paid out by mortgage lenders to mortgage brokers could result in a conflict of interest and customers getting offered a less than optimum buy to let mortgage loan. (For parts one and two of this topic, please see the blogs dated 24th May and 5th June.)
It’s worth making it clear that mortgages for business purposes – such as a buy to let mortgage loan – do not get the same degree of protection as a normal residential mortgage does, so there is an inherent enhanced risk that a broker could sell you an unsuitable product.
For example, suppose a mortgage broker has two lenders – both with similar products - but one pays him a higher commission than the other. Clearly, the one with the higher commission is more likely to get the business.
Alternatively, the broker may decide to reduce the fee he charges to the customer from the higher commission paid by the lender. (Most mortgage brokers charge their client a fee as well as getting a commission from the lender)
Of course, a problem exists if the customer is not offered what would have been a better product because of commission differentials paid by the lender.
The risk is all the greater if a broker only gets remuneration from the procuration fee paid by the lender (i.e. say, because he chooses not to charge the client at all).
Clearly, in this case, he is going to be more driven by procuration fees than if he is getting paid from both client and lender and will be most unlikely to recommend a lender that does not pay a fee.
It’s worth knowing too, that most lenders now also pay so called, “repeat fees" to brokers. These are paid to intermediaries by lenders if they advise existing borrowers to remortgage with the same bank or building society.
These types of fee are relatively new but the amounts paid have increased in recent years as each bank and society lender tries to stop the loss of business to other lenders.
Clearly, these payments could mean an intermediary encourages a client to remortgage with the same lender even though a better deal is on offer with another lender.
However, don’t be too worried, because as another broker told me “Our business is based on our reputation, so it is not in our interest to recommend a mortgage loan purely based on commission -especially in the buy let arena where we want landlords to keep coming back as they build up their property businesses.”
At the end of the day, as ever, it always pays to shop around. If you use a mortgage broker to arrange a buy to let mortgage, don’t be afraid to ask him what fee he is getting from the lender. Then check on the net that what he has offered you looks good.
But, be prepared to pay him for the work he has put in on your behalf. In other words, be aware, ask questions – but don’t be mean!
David Lawrenson is the author of “Successful Property Letting.” His website is at www.lettingfocus.co.uk Copyright: David Lawrenson 2007.