Contrary to many expectations, landlords and prospective landlords seem to be increasingly attracted to investment in the buy to let property market.

According to a Property Investor Survey on the 7th of June 2017, the proportion of landlords looking to increase their property holdings has increased by 48% since November 2016 and is up by a surprising 41% over the previous 12 months.

The survey also revealed some notable changes in the mortgage preferences expressed by buy to let investors:

• there has been a distinct switch from three- to five-year fixed rate mortgages amongst investors;
• 42% of those surveyed expressed their preference for five-year fixed rate mortgages, compared to just 33% in November of 2016 and double the percentage twelve months ago;
• three-year fixed rate mortgages appear to be less popular (only 5% of respondents) than 10-year fixed rate mortgages.

The statistics on buy to let mortgage preferences appear to reflect landlords’ adapting to new affordability rules which were introduced by the Bank of England’s Prudential Regulation Authority (PRA), which came into effect in January 2017.

The challenges to which landlords are responding

The Property Investor Survey suggests that investors in buy to let property are adapting to the challenges created by a raft of government and regulatory bodies in the past few years – not to mention the ongoing, background uncertainty of the results of Brexit negotiations, which formally opened on the 19^th of June 2017.

The following are just some of the new market pressures faced by landlords:

Mortgage restrictions

• the Bank of England’s Prudential Regulation Authority (PRA), introduced new rules on lending in January of this year;
• increasing and tightening up the criteria under which lenders may make mortgages available to would-be investors has made it theoretically more difficult for existing landlords to increase the size of their property portfolios and for new buy to let investors to enter the market;
• the changes are designed to make a stricter assessment of affordability of any mortgage in terms of the ratio of profit on rental property income and expenditure on mortgage repayments;

Mortgage interest tax relief

• traditionally, buy to let landlords have enjoyed a tax-free allowance on expenditure on mortgage interest repayments;
• starting with effect from April of this year and for the next four years, that allowance is steadily being phased out and, in future, all owners of buy to let property become liable for tax on the whole of their profits, minus the flat-rate tax allowance of 20%;
• hardest hit are likely to be those landlords already in the highest tax ratings of 40% or 45% – since they are going to pay significantly more in tax – but even those landlords currently on lower ratings are likely to be pushed into higher tax brackets, and so, are also going to have to bear a heavier tax burden;
• on the 21^st of November 2016, the Telegraph newspaper described the effects of the changes which are being made and also included a simple buy to let calculator, with which you may compute the way the new tax regime is likely to reduce your profits as a landlord;

Stamp Duty

• since April 2016, anyone buying a second property – in addition to their main home – that is valued at more than £40,000, has to pay an additional Stamp Duty surcharge of 3%;
• clearly, this affects practically every buy to let investor, who is hit by the increased tax when purchasing a property;
• just how much needs to be paid in Stamp Duty of course depends on the purchase price of the property, but the Consumers’ Association’s Which? magazine has published a Stamp Duty calculator as a ready reckoner;

Wear and Tear Allowance

• in the same month of April 2016, landlords also saw an amendment to the way in which tax allowances may be claimed on repairs and maintenance to let property – the so-called wear and tear allowance, which was formerly granted as an automatic matter of course;
• now, landlords may only claim up to 10% tax allowances on money actually spent on maintenance, repairs or the renewal or replacement of furnishings and fittings – but it is important to remember that there is still no tax allowance on money spent improving your let property.

Clearly there have been many changes for landlords to take on board and new challenges to confront when attempting to run a profitable buy to let business. Surveys such as the one referenced above, however, suggest a decided resilience in this sector of the property market, with investors adapting to change and still being drawn to buy to let businesses.

It might be something you never thought you’d have to worry about as a landlord, but there is growing evidence that some tenants are using private rented accommodation for the cultivation of cannabis.

Time was, when criminals choose relatively large industrial and commercial buildings in which to develop cannabis farms, explains a booklet published by CrimeStoppers. Increasingly, though, criminals are turning to privately rented homes – where more than a million cannabis plants have been seized by law enforcement officers in recent years.

One of the latest seizures – reported by Landlord Today on the 15^th of March 2017 – was in Motherwell in Scotland, where a tenant faces jail for cultivation of 93 cannabis plants found to be growing in his small flat. It was only when the presence of a cannabis farm on his property became apparent that the landlord reported the matter to the police?

What to do

If you were the landlord in a similar situation, what would you do? Might you be tempted to turn a blind eye? To do so is likely to prove a huge mistake. If you become aware that your let property is being used as a cannabis farm and knowingly allow the cultivation of the illegal drug to continue, you are committing a crime and may face up to 14 years in prison and/or an unlimited penalty in fines.

It might be in your more immediate interests because of the wider consequences for your buy to let business.

Turning such a residential property into a cannabis farm typically involves significant structural alterations – which, of course, are completely unauthorised by your local planning department. As the subject of unauthorised structural alterations, your insurer may decline any claim you submit for the extensive and costly repairs likely to be incurred after the event.

Structural alterations are not the only form of serious damage likely to be caused by such illegal activity. A cannabis farm typically requires a continuous and extensive supply of both electricity and water. Little care – for structural damage or safety – is going to be taken by criminals routing further electrical cables and water pipes through your property.

The cost of repairs to the damage done in this way might easily run into tens of thousands of pounds.

Bills racked up through the abundant use of electricity and water are most unlikely to have been paid by your rogue tenants, of course – leaving you to foot the bill.

In addition, the use and storage of volatile and flammable chemicals used in the cultivation of the crop inevitably increase the risk of fire.

Clearly, all of this has serious implications for your landlord’s insurance cover. For that reason, we have prepared an extensive guide to landlords and cannabis farms, which you might care to read in more detail.

Finally, you might be warned that the discover of your let property being used as an illegal cannabis farm is likely to be only the start of your problems. Any face to face contact with criminal tenants – even once the police have become involved – is going to be both unpleasant and potentially dangerous.

You are still left with the further worry, hassle, and expense of securing their eviction from your premises. Only once they have been evicted and you have completed what are likely to be extensive repairs to the property, are you once again in a position to generate any income from rents.

Does the acronym “MEES” or the expanded “Minimum Energy Efficient Standards” mean anything to you?

If they’ve both drawn a blank, then you may have cause for concern.

MEES

If you’re in the dark about the above, you’re far from alone.

Some recent surveys have indicated some pretty worrying statistics:

• around two-thirds of landlords are hazy about what this is and how it will affect their business;

• about 25% know nothing at all about MEES.

A full breakdown of the worrying statistics is given in the reference link above and what’s really of concern is that MEES isn’t just another piece of red tape or a minor administrative task. If you get it wrong it could easily stop your business in its tracks.

So, it will pay to get to grips with this – and fast.

What is MEES?

Over many years now successive governments have launched major initiatives, backed up by legislation, all aimed at reducing the country’s energy consumption.

They have been driven partly by environmental concerns but also by the hard fact that our civilization’s ever-growing energy demands look unlikely to be met in the future. Given declining fossil fuel levels and the uncertainty over the practicality of nuclear and alternative Green energies, it looks possible that we’ll have a very real gap between demand and supply capabilities in the future.

So while a scientific breakthrough in energy generation might be hoped for, in the meantime, the only viable route looks to be trying to consume less energy.

MEES is one such initiative.

It’s aimed specifically at landlords and let properties. In a nutshell, it will make it illegal to let a property after 1^st April 2018 unless it meets certain minimum energy efficiency criteria. That’s the now broadly familiar letter designation that’s allocated after a survey on an Energy Performance Certificate or EPC.

If your property is graded in the F or G bands, then from April 2018 you won’t be able to let it unless you’re granted a special exemption. A failure to comply with the regulation could result in a penalty of up to 20% of the rateable value of the property after three months.

Implications

At Cover4LetProperty, we’re expert in things such as landlord insurance rather than building technology and its associated costs.

Even so, it’s clear that these changes in regulations might have a serious impact on some landlords. Certain of them may feel they’re trapped between the need to keep letting their property and the difficulty of finding the money required to upgrade their property to a higher energy efficiency rating.

Some energy saving measures can typically be implemented quickly and at modest cost. Examples such as draught excluders come to mind. However, other required work can be more expensive, such as fitting double glazing.

Fortunately, there is at least some assistance which might be available in the shape of the Energy Company Obligation (ECO) scheme. This is where the energy supply companies assist by installing insulation and other related assistance either free of charge or at reduced rates.

Conclusion

Whatever the impact of MEES will be on your business, ignoring it wouldn’t be advisable.

It will affect very large numbers of landlord properties and those changes will need to be understood and above all managed, if potential fines are to be avoided or your business effectively stopped.

Finding some time to get to grips with MEES and what it will mean to you, might be advisable – and perhaps sooner rather than later.

Whether you are a committed, “professional” landlord with specific objectives for a buy to let business, or a so-called “accidental” landlord who happens to find themselves with a property to let, your activities are regulated by legislation – an increasingly extensive raft of legislation at that.

Naturally, you want to stay on the right side of the law – some of the penalties may be quite severe – and flagrant breaches might jeopardise the validity of your landlord’s insurance.

Here is an overview of the current legislation required as at May 2017. Please note that legislation is liable to change and so the following should be used as a guide only as to what is required.

Repairs and the general condition of the property

You have a general duty to maintain the let property in a structurally sound condition, without the need for major repair. This includes the absence of damp, which may cause a health hazard. You must also ensure that water storage systems pose no threat of the – potentially fatal – Legionella bacteria, which may cause Legionnaire’s Disease.

The property must have adequate lighting, ventilation and heat, together with a water supply, drainage, toilet, wash basin and shower or bath.

If repairs are necessary to keep these in good condition or if anything in the let accommodation is hazardous to health, you are required to arrange for them to be made. If you don’t, your tenants may complain and the local authority might issue an improvement notice requiring the repairs to be made under the Housing Health and Safety Rating System (HHSRS).

Safety

Unsurprisingly, there is a large body of legislation designed to ensure that your tenants live in accommodation free from threats to their safety from gas installations, electricity supplies or fire:

Gas

• you are required by law to have any gas supply and installation inspected and checked every year;
• the gas safety check is to ensure the absence of potentially lethal escapes of carbon monoxide, and during the course of this inspection, you might also want to have the gas supply pipework checked, suggests Stay Gas Safe;
• the inspection must be carried out by a registered Gas Safe engineer and a copy of the certificate he issues must be given to your tenants;
• penalties under the relevant legislation are severe – imprisonment or a fine of up to £20,000, or if the offence is heard by the Crown Court, imprisonment or an unlimited fine;

Electricity

• the law does not require and annual inspection, but you still have a duty to ensure that the electrical installation and any appliances you supply are safe;
• it may be in your own interests, therefore, to have the installation and appliances checked by a qualified electrician periodically – and at least every 5 years;

Fire

• you must comply with all national and local fire regulations – including smoke alarms on every floor of the building and the installation of carbon monoxide detectors in any room with where there is a fuel-burning appliance;
• unrestricted access to fire escape routes must be available at all times.

“How to Rent” guide

The guide is published by the Department for Communities and Local Government, and you are required to give each a tenant a copy of it – emailing it, if you both agree.

Deposit Protection Scheme

If you demand a deposit from your tenants at the beginning of any assured shorthold tenancy (the most common form of tenancy agreement), the fund must be placed for safe keeping with an approved scheme and your tenants informed accordingly.

This is designed to help protect the tenants’ rights to recover any return of deposit due at the end of the tenancy and may help to resolve any dispute you have with a tenant about amounts that need to be deducted (to cover damage and breakages, for example).

If you fail to place the deposit in approved scheme, the tenant may apply to the courts for an order to return the sum involved or to place it immediately in an approved protection scheme.

The courts may also order that you repay your tenant up to three times the amount they originally gave you as a deposit.

“Right to Rent”

To help the authorities police the immigration laws, you also have a duty to confirm that any tenant, or member of his or her household, has the right to stay in the country and therefore a right to rent your property.

This involves checking the documents that confer a right of residence, making a copy of those documents and keep the copies for as long as they are your tenants and one year thereafter.

Once again, the penalties for failing to make these checks or for letting the property to someone who has no such rights, are quite severe and may result in a prison sentence or an unlimited fine.

Income tax

Finally – and as with any other business profits – you have a liability for paying income tax.

As a result of the introduction of the so-called “section 24”, that came into effect in April 2017, there are major changes to the tax allowances available to landlords – principally the phased removal of income tax relief on mortgage interest payments.

Knowing what attracts your tenants and understanding what they want from their rented accommodation, is an important part of being a landlord.

The knowledge gives you vital market information, allowing you to optimise the rent you charge, the priority you attach to given aspects of the tenancy, and allows you to target particular tenant groups.

Above all, perhaps, knowing what attracts your tenants may help you deliver what is wanted in a way that allows you to select the most reliable, responsible, and longer-term tenants.

Survey results

Finding out what tenants want is essentially a question of asking them. It’s a question of such basic importance that, here at Cover4LetProperty, we do more than arrange landlords insurance, but regularly commission surveys on precisely this subject – our most recent results were published on the 15^th of February 2017.

Tenants preferences and expectations change over time – swinging backwards and forwards between key indicators in the relatively short interval of six months between the surveys we conduct. Our most recent findings suggest that:

• rent levels, location, access to and ease of parking, and having a garden appear to be the principal attractions – in that order – for prospective tenants when choosing a property to rent;

• a very significant, but perhaps unsurprising, proportion of 86% of those surveyed said that the cost of the rent was a primary consideration – an increase of some 7% over the previous six months;

• the same proportion (86%) said that the location of the rental opportunity was a major indicator – up by 15% over the past six months;

• access to a garden and easy parking attracted the same 44% of respondents – a figure that represents a decline of 6% as far as a garden is concerned but an increase of 9% on the ease of parking, compared to six months ago;

• fewer tenants (32%) considered an easy relationship with the landlord to be important (down 3% on the previous survey), but more of them (38%) attached importance to the overall state of decoration (up 8% over the past six months); and

• permission to keep a pet in the rented accommodation appears to be significantly less important, with only 20% of tenants now looking to landlords for such approval (down 18% on the previous survey results).

We recognise that no one survey is able to determine the definitive list of tenants’ expectations of rental property – which is why we carry out our surveys so frequently. It is also why we take note of findings from other sources – one of which is the news service Property Wire.

In a press release dated the 13^th of February 2017, for instance, Property Wire claimed that one of the principal concerns of tenants is the resolution of frustrations in dealing with the landlord over maintenance and repair issues – the frustrations appear to take on greater significance among younger tenants, added the news service.

In a separate press release, dated the 22^nd of December 2016, however, Property Wire identified many of the issues highlighted in our own survey, and mentioned the importance to tenants of value for money in the rent that they pay, the location of the property, the overall condition of its décor and the provision of enough storage space.

There are changes on the way for the CMP (Client Money Protection) scheme.

These will be beneficial to the industry at large and it’s important that landlords and letting agents understand them.

The background

Prior to 2007, disputes could arise when tenants were unable to obtain refunds of sums they’d paid to letting agents as a deposit. Unauthorised deductions for non-specific reasons were also a cause for complaint.

Some landlords also report similar troubles at the other end of the chain when, for example, letting agents ceased business whilst holding sometimes significant amounts of the landlord’s money.

After 2007 it became, subject to the date and type of tenancy agreement, a requirement for landlords and letting agents to place all tenant deposits into a government-backed scheme. In theory this should have resolved the problems but it wasn’t totally successful due to a number of loopholes.

The basic problem with the old scheme was that it wasn’t mandatory for the sums concerned to be separately ring-fenced and governed by an official third party.

So, letting agents could still effectively retain the monies in their own account under an insured funds option but then fail to continue paying the cover fees to one of the government-approved third party schemes. There was also no automatic notification system in place for the landlord or tenant to tell them that their funds were no longer insured.

In some cases, the first a landlord or tenant would know of a problem was when they applied to the letting agents for the return of monies.

This situation has resulted in losses for landlords and tenants, negative publicity for the industry in the media and numbers of legal actions. Many landlords have been calling for urgent change.

The new scheme

The good news is that this is changing and that’s something that will be welcomed by tenants and landlords alike.

At the end of March, the government announced that it will be made compulsory for all tenant’s and landlord’s deposit funds to be held in a CMP account. So, even if a letting agent’s business fails, the tenant’s and landlord’s deposit funds will be protected and held safely.

To add teeth to the measures, letting agents found to be using clients’ funds without using CMP services will be liable to a fine of up to £5,000 and potentially face the closure of their business.

A welcome step

All responsible landlords will recognise the benefits of this approach and the greater financial security it provides them with. Similar advantages for tenants will also be appreciated.

For landlords, an added benefit here will be the increased professional reputation of our industry.

There is a general consensus that changes to tax rules and ever-increasing regulation have made life more difficult for landlords of let property in the past couple of years.

Those difficulties have been made no easier by the growing trend towards a contraction in the private rented sector through greater home ownership – a trend on which we reported in an article in May 2016.

As the business case for running a buy to let business has come under increasing pressure, it is more important than ever that those business assets are adequately safeguarded. And the principal means of defence lies in adequate property insurance.

So that the cover you buy provides the cover you need, however, it is important that it is tailored to suit the particular job for which it is intended. Not just any type of property insurance is called for, in other words, but insurance specifically designed for let property – namely, landlord’s insurance.

But making the relevant choice does not stop just there. Even when you have recognised your need for landlord’s insurance – as opposed to standard owner occupier’s home insurance, let’s say – there are still further levels and types of landlord insurance to be unpicked:

Residential landlord’s insurance

• quite naturally, insurers have a general concern to know just what types of risk are being covered – and many of these are going to be determined by the use to which the insured property is put;

• there is a distinction between let property which is to be occupied by tenants as their home and tenants which are occupying it in the course of their business or for commercial purposes;

• residential landlord’s insurance, therefore, is specifically designed to provide the protection you need when your let property is to be occupied by tenants on a residential basis;

Commercial property insurance

• the other side of this particular coin is when you are letting your property for commercial or business use by tenants.

• when your tenants are using the premises for these purposes, the risks are of a different order and scale to those when the property is being used as a residence. And those differences need to be reflected in the type of insurance you are arrange;

Unoccupied property insurance

• whether you own commercial or residential let property, let is a further set of circumstances where you are likely to need yet a different type of property insurance – that is when the premises are left empty and unoccupied for longer than a month or so;

• this might happen for a number of reasons – you are in the process of selling the property, refurbishing it, or still looking for tenants to replace who have just left. Whatever the reasons, however, this is a time when the premises may be at their most vulnerable;

• not only does an unoccupied property attract all the wrong kind of attention – from undesirables such as squatters, vandals, thieves and arsonists – but relatively minor repair and maintenance issues might go unnoticed if there is no one there to spot them;

• property managers, VPS, have detailed some of the ways in which empty commercial and residential let properties are exposed to heightened risks;

• it is because of these extra risks that insurers typically restrict or remove the cover normally in place once the property has been empty for a month or so – and specialist unoccupied property insurance is needed in its place.

Accidental landlords

So, there are different types of landlord’s insurance designed to protect premises according to their use at any one time – residential, commercial or unoccupied.

These distinctions apply whether you own the property as part of a purpose-designed buy to let business or whether you are what is sometimes described as an “accidental landlord” (you find yourself having become a landlord almost by chance, having inherited a property or one that you do not need for your immediate personal use).

Types of insurance

In addition to there being different types of landlord, there are also different types of insurance typically employed to safeguard the premises:

Building insurance

• at the core of practically any type of property insurance – including that which is being let or leased to tenants – is the protection of the structure and fabric of the building itself against such potentially devastating risks as fire, flooding, impacts, storm damage, escape of water or fuel, vandalism and theft;

• this is the purpose of building insurance and the total sum insured is typically sufficient to cover the worst case scenario in which the premises are completely destroyed as a result of some insured incident and need to be totally resconstructed;

Contents insurance

• whether your let property is being used for residential or commercial purposes, or is temporarily lying vacant and unoccupied, you are likely to continue to own at least some of its contents;

• those contents which you own need to be covered by contents insurance – although the provision of cover for contents owned by your tenants remains their own responsibility;

Public liability insurance

• as the owner of the let or unoccupied property, you also have a general duty of care to prevent the risk of injury or damage to the property of any tenant, visitor, member of the public (or even any unauthorised intruder;

• if one of these individuals suffers an injury or has their property damaged, you may be held liable and ordered to pay a substantial amount by way of compensation;

• landlord’s public liability insurance is designed to indemnify you against such claims.

Insurance for landlords of let property, therefore, operates on a number of different levels – according to the use to which the premises are currently being occupied, and depending on the types of risk which need to be covered. If you own let property, therefore, it is important to arrange the cover which serves your particular needs and circumstances at the time.

If you let a property, you may be counting the pennies, because everything you spend on the property may come out of the rent you are collecting. You may already be paying a managing agent, a mortgage and a handyman from time to time. So you may wonder, in a bid to cut costs, whether you really need to bother with building insurance for landlords?

You may wish to consider the following reasons for taking out a policy:

• your mortgage – once you arranged your mortgage, did you just breathe a sigh of relief that you were accepted, set up the direct debit for the monthly repayment and file the documents in a safe place? You may wish to retrieve them to check whether you are obliged to the lender to insure the building’s structure. Some lenders may even insist on seeing a cover note before they release the funds to allow you to complete the purchase; and
• your own peace of mind. What would happen if your buy to let property burnt down? Or, unlikely as it may seem, get destroyed in a freak earthquake or storm?

Such concepts may be the stuff of nightmares for your average landlord, but you may wish to think what may happen in these circumstances. Would you be able to fork out for the repair works from your own funds, or would have to abandon the property? What about your mortgage payments? How would you fund them?

Building insurance for landlords may give you the peace of mind that these expenses may be covered should anything terrible happen. Some providers, such as ourselves, even provide loss of rent cover if your property becomes uninhabitable for a period of time due to an insured event happening (such as a fire or flood).

How much will it cost?

The price of building insurance for landlords may depend on a number of factors, which may include:

• the postcode of your property;
• whether you have made any claims on any such policy before;
• whether your property is of conventional construction method;
• whether the property is in a flood plain; and
• whether alarms and security locks have been fitted.

How long will it take to arrange?

Using a specialist service such as ours that allows you to get a quote and buy landlord insurance online, as well as provide professional and friendly telephone support for any questions you may have, means competitively-priced building insurance for landlords can typically be arranged the same day, giving you immediate peace of mind that your asset is properly protected.

We can also send your policy documents via email, if you want.

The government’s relatively recent proposal to abolish the right of property agencies to charge tenants fees for their services, has led to some consternation in the letting industry.

The backdrop

Certainly this was a populist move in terms of public perceptions. Nobody enjoys paying fees of any sort and some are more unpopular than others.

That was particularly true with tenants and the property agency fees they were normally asked to find. It’s easy to sympathise because when moving home the expenses can start to mount up and paying hefty intermediary’s fees for simply the right to rent a property was always a major source of tenant discontent.

It’s a fact of life that few tenants will be losing sleep worrying about just how landlords will cope now the government believes they’re the group that should be liable for such costs. However, reading in the media, many landlords point out that this is just moving costs around and not eliminating them. They maintain that the net result is likely to be an increase in rents.

The logic

While the media have reported individual cases of excessive fee charging from property agents, even the most vocal critics of their services admit that they are fulfilling a necessary role. It’s one that has benefited all participants in property hunting, including the tenants who can often save time by engaging in ‘one stop shopping’ as opposed to trying to look at many different landlord properties individually.

That role is one that costs the agencies money and of course they have to make a profit on top. The inevitable conclusion is that if the new measures reduce their income then they will need to replace it from the only source they have left – the landlords.

The government’s rationale is that landlords can more easily shop around for property agents and that means that they will be better able to control the agencies’ fees and squeeze down their prices by playing the competition card. That’s something tenants, of course, couldn’t do.

The risks

While there is a certain logic in such arguments, there is also a commensurate risk.

Some landlords are already overloaded in managing their business operations and things such as rates, taxes, let property insurance and so on. There will, for some, be the inevitable temptation to simply pick up these ‘new’ costs from the property agencies and then pass them onto their tenants through increased rents.

It would be naïve to see this option as anything other than the most attractive path of least resistance for many landlords. This is why many are predicting that the government’s stated objective, of reducing housing costs for tenants, is unlikely to be achieved. The costs will remain the same but they will simply now be invisible and hidden within the rental amount.

Scotland’s experience

There are some though who point out that this measure was adopted in Scotland several years ago and without catastrophic consequences.

The statistics are disputed but many argue that the move led to a very short-term increase in rental costs but that this quickly smoothed out and rates went back to their pre-measure levels.

However, it is notoriously difficult to compare the Scottish rental market outside of perhaps Edinburgh, Glasgow and Aberdeen, with the generalities of the position across much of the densely populated southern areas of England. In many areas of the latter, demand hugely outstrips supply and that may suggest that certain of the balancing market forces might not apply south of the border.

To put it another way, in many parts of England the argument goes that this measure can only result in higher rents.

Summary

Numbers of objective parties are saying that once the initial headline popularity of this move has passed, the net effect for most tenants will be higher rents.

For some landlords, there may be the concern that this will simply become incorporated into the “landlords charging higher rents” statistics that are equally controversial and sometimes a political ‘hot potato’. Some anticipate more ‘landlord bashing’ in the media as an outcome.

The position over the months ahead will be closely watched by all in the business.

If you are a landlord, you almost certainly want to protect your buy to let investment with the appropriate level of insurance. The economics of running a successful buy to let business are on a fine edge, however, and you need to make sure that you secure the most competitively priced landlord insurance cover.

So, how do insurers calculate the price of the premiums you need to pay for the cover you receive?

The cost of insurance

The cost of any kind of general insurance – in other words, the price of the premiums – is calculated by the insurer in terms of the estimated costs of paying out on claims. Premiums charged are designed to cover the cost of meeting claims.

This is as true of landlord insurance policies as any other.

Small claims

Small claims are typically subject to special consideration by insurers, since:

• a small claim requires just as much administrative effort on the part of the insurer as a major claim – dealing with small claims therefore involves disproportionate costs for the insurer and risks increasing the price of premiums that need to be charged;

• one way of discouraging smaller claims is for the insurer to impose an excess – effectively leaving some proportion of the risks uninsured, explains the Citizens’ Advice Bureau;

• not only does the existence of an excess mean that the insured is sharing responsibility for mitigating the risks of loss or damage, but it also allows the insurer to lower the overall price of premiums – and in so doing, make your premium more attractively-priced.

Making a small claim will also typically attract an excess – which you will be liable for.

Here at Cover4LetProperty, however, we have recently warned that it is not only the payment of any excess on your claim that may cost you dear. There are at least two reasons why this might be the case:

Your premiums

• when insurers are calculating the risks of your making a claim on any policy – that is to say, the basis on which they are also calculating the price of the premiums you need to pay – they typically take into account your record of previous claims;

• even when those claims are small, they appear on your record and are considered by insurers to increase the chances of your making further claims in the future;

• the effect, therefore, is for the insurer to charge you a higher premium in view of the assessed risk of your making further claims;

No claims discount

• even a small claim also counts against any no claims discount you may have been building up with your insurer;

• no claims discounts represent one of the main ways in which landlords help to control the cost of the insurance they need and the value, in terms of lower premiums, makes the maximum no claims discount something to be prized and safeguarded;

• certainly, with our policies, we typically include a 20% discount based on there being no previous claims. If you do make a claim, however small, you may typically lose your 20% discount – meaning you landlord insurance cover will cost you more.

If you are thinking about making a small claim on your landlord insurance, therefore, you might want to speak to us first so we can advise as to the next steps.