Protect and survive

As the cost-of-living crisis bites ever harder and evictions soar to an all-time high, landlords and letting agents are being warned to make sure they have good rent guarantee insurance.

They are making choices over whether to pay the rent or pay the electricity or feed their kids…

Thanks to rising interest rates and harsh government policies such as the looming eviction ban, landlords are quitting the private rental sector in droves – reducing supply and pushing up rental prices. That leaves tenants between a rock and a hard place, with some facing the choice between paying the rent or feeding their children. In this feverish climate, it’s a “no brainer” for agents to ensure that landlords have rent protection in place, warns our panel of experts.

‘Making choices about feeding the kids’

“Evictions are at an all-time high at the moment,” says Eddie Hooker, CEO of Hamilton Fraser and Landlord Action. “We are seeing an 80 to 90 per cent increase in eviction requests and Section 21 and Section 8 requests coming in.” It’s partly because landlords are selling up, but there is more and more evidence that this is a costof- living issues. Tenants are being advised to stay put by CAB and councils, and they are making choices over whether to pay the rent or pay the electricity or feed their kids.

We have already seen a 10 per cent increase [in rents] across the market – that is going to put more pressure on tenants. I don’t know what the solution is… Eddie Hooker, Hamilton Fraser.

“We are seeking a definite correlation there and I do think if interest rates keep going up, and landlords increase rents – we have already seen a 10 per cent increase across the market – that is going to put more pressure on tenants. I don’t know what the solution is.”

He adds: “The real issue is the lack of money coming in – and obviously landlords are feeling the pinch as well.

“For the amount it costs – an average policy is £300-£400 – it is one of the most important protections a landlord can get. And from a letting agent’s point of view, if there is no rent coming in there is no management fee being charged.”

‘Tenants can’t keep up with costs’

Andy Halstead is CEO of the Barbon group of specialist insurers, Homelet, Let Alliance and Rentshield Direct. He agrees with Hooker. “We’ve never sold as much rent guarantee as we do now – even during the Covid we didn’t see demand like we are at the moment,” he says.

“If you think about the cost of a rent guarantee policy and the risk associated with a tenant defaulting, it’s an absolute no brainer – why would you not do it?”

There’s only one direction rents are going in and that is up, and tenants just can’t maintain that level of increase in costs. This has got to break somewhere. Andy Halstead CEO, HomeLet,Let Alliance and Rentshield Direct.

Halstead says landlords with mortgages are suffering because the mortgage rates have shot up, they are paying tax on the rent regardless of whether the property is profitable or not, and there is the supply problem – which will only get worse as landlords leave the sector.

“So there’s only one direction rents are going in and that is up, and tenants just can’t maintain that level of increase in costs. This has got to break somewhere. But because of the lack of property tenants are being forced to pay whatever they can.

“I don’t see light at the end of the tunnel for a couple of years, I think we are going to have to get through this economic cycle. Landlords getting whatever protection they can is crucial.”

Landlords need to reduce risks

Natasha Barrow, Account Director at Arthur J. Gallagher, says one of the big topics at the recent Propertymark One conference was the issue of tenants being unable to afford to pay their bills.

“Clearly tenants are struggling… If they are going to be in financial difficulty then rent is going to be something they will unfortunately default on if it is a choice over eating or paying rent. So we see it as a really important time to be taking out rent guarantee cover.”

Clearly tenants are struggling… If they are going to be in financial difficulty then rent is going to be something they will unfortunately default on. Natasha Barrow, Arthur J Gallagher.

Richard Dawson, rental sector expert at RentGuarantor, is in agreement. “With the increase in the cost of living and a more challenging financial environment for landlords because of interest rates, it is my opinion that the need for landlords to assess and reduce their risks is more important than ever,” he says.

RentGuarantor helps landlords and agents by standing as the guarantor in relation to rent. The service is subscribed to by the tenant, meaning there is no cost to the landlord. Richard Dawson, RentGuarantor.

“Landlords are uncertain of the economy and, having discussed risk with many landlords at length recently, are feeling the pinch of increased interest rates. The uncertainty around interest rates stabilising or reducing means landlords are taking more precautions than ever to mitigate the risk of rent arrears.

You need to do all you can to keep your landords safe and secure – and make a commission along the way.

“Tenants of course are feeling the effects of inflation, too, with increased energy prices, food prices and a general increase in the cost of living having resulted in more tenants being in arrears now than during the coronavirus pandemic.”

Big growth in policy sales

Over at Goodlord, CEO William Reeve has seen the same growth in rent protection insurance. “The latest dynamic is the shortage of rental supply and higher interest rates pushing up rent by double-digit amounts, which squeezes tenants’ disposable income and puts additional stress on them,” he warns. “As a result we have seen sales of insurance grow substantially.

Landlords, just like tenants, are being squeezed, leading to many leaving the market. But for many, the protection and peace of mind of insurance are compelling value. William Reeve CEO, Goodlord.

“Landlords, just like tenants, are being squeezed, leading to many leaving the market. But for many, the protection and peace of mind of insurance are compelling value – for the equivalent of a week or two’s rent, a landlord can protect an entire year of income and any legal costs arising from recovering arrears.”

He says letting agents play a key role in highlighting the risks ahead, particularly with the changing legislative landscape.

“With Section 21 looking to be abolished by the Renters (Reform) Bill, many landlords will be unfamiliar with the process for enforcing their rights, and a letting agent providing rent protection and claims support could become even more important.”

Reading the small print

When it comes to buying insurance, Eddie Hooker of Hamilton Fraser warns that “not all policies are equal”. “Read the terms and conditions,” he advises. “Some will have an excess, either the deposit or one month’s rent; there are other rent guarantees that have no excess. Then there are T&Cs you have to be careful of. Some insurers say you can’t raise a claim for two months, some will pay until you let it, others only for six months or 12 months.”

Marc Corcoran, product and placement director for Arthur J. Gallagher, comments: “Not all legal expenses and rent guarantee policies are the same, and we would urge you to check the terms and conditions very carefully, for example:

• Does the policy pay rent beyond the policy period?
• Is the cost of issuing eviction notices covered?
• Will rent will still be paid when evictions are suspended – as they currently are in Scotland until at least September 2023?

Not all legal expenses and rent guarantee policies are the same, and we would urge you to check the terms and conditions very carefully. Marc Corcoran, Arthur J. Gallagher.

Mediation

Another area our experts say agents should focus on is to keep talking to tenants – but they warn it’s vital that the insurer is notified as soon as someone falls into arrears.

“Our Legal Expenses and Rent Guarantee Insurance has been reconfigured and relaunched, introducing a robust mediation process for all claims,” says Corcoran.

“This has given landlords access to an expert mediation facility that would work with them and their tenant to come to a fair agreement. Once these methods have been exhausted, the landlord’s case would be referred to solicitors ready for eviction proceedings to commence as and when possible.”

Richard Dawson says that in the event of non-payment of rent, RentGuarantor will mediate any arrears by discussing options with the tenant, create any necessary repayment plans, and should it be necessary, serve any section notices and complete the eviction process on behalf of the landlord or letting agent, at no cost to the landlord or agent.

“This is where RentGuarantor helps landlords and agents; by standing as the guarantor in relation to rent. The service is subscribed to by the tenant, meaning there is no cost to the landlord or letting agent.

“We aim to mitigate the risk of arrears for landlords and importantly ensure we provide guidance and support to any tenants who may find themselves in arrears.”

In-house legal team

Let Alliance has its own in-house legal department that steps in immediately if tenants fall into arrears. “When a tenant goes into arrears we ask them to notify us and then we take over rent collection, and we have a lot of success in that,” explains Andy Halstead. “A significant percentage of our rent guarantee claims never end up with a claim because we collect the money from the tenants.

“Because we try to intervene when there is still only one month of arrears we have a very good success rate of getting that money in, which means the problem then goes away. If the problem doesn’t go away then before we start the legal process we act as mediator between the landlord and the tenant to see if there is any way to get an agreement to help both sides to resolve the problem.”

No brainer

One thing is for sure, given the economic climate and the pressures on landlords, rent defaults are going to get a lot worse before they get better. You need to do all you can to keep your landords safe and secure – and make a commission along the way. As Halstead says, encouraging your landlords to take out some kind of rent protection insurance really is a “no brainer”.