At first glance, there might seem little difference between a dwelling in which the owner occupier lives and one that is let to a tenant – despite the difference in tenure, both are homes, with a building and its contents broadly vulnerable to similar risks and perils.
As far as mortgage lenders and insurers are concerned, however, there is a world of difference.
Mortgages
A standard residential mortgage arranged by a prospective owner is different to a buy to let mortgage sought by a landlord.
The key differences between a residential mortgage and a buy to let mortgage are:
Purpose
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- Residential mortgage: For buying a home to live in.
- Buy to let mortgage: For purchasing a property to rent out to tenants.
Loan criteria
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- Residential mortgage: Based on your personal income.
- Buy to let mortgage: Primarily assessed on the rental income the property will generate.
Interest rates and deposit
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- Buy to let mortgages typically require a larger deposit (often 25%) and higher interest rates.
Repayment type
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- Many buy-to-let mortgages are interest-only, while residential mortgages are often repayment types.
These differences are further reflected in the way the two different types of mortgage are regulated. The owner occupier – who stands to lose his home if things go wrong – has the full protection of the Financial Conduct Authority (FCA); in many cases, a landlord does not.
Insurance
The distinction drawn by mortgage lenders is one that is also followed by insurers – the risks and perils to which an owner-occupied home is exposed and those of tenanted premises are significantly different.
Standard building and contents insurance is appropriate for the owner occupier, therefore, but specifically written landlord insurance is necessary if the dwelling is let to tenants. The use to which the dwelling is put, determines the type of insurance required
The distinction is very important to any property owner looking to safeguard his or her investment by arranging insurance cover.
Can I use home insurance for my buy to let property?
No. If the owner of buy to let property has mistakenly arranges standard home insurance (suitable for the owner-occupier) any claim may be rejected on the grounds that the premises are in fact occupied by tenants and the policy will become void.
Not only that, but your mortgage lender could ask you to repay the outstanding mortgage amount immediately, as you will have breached the terms of your contract with them in not having the correct type of buildings insurance.
If you are the owner of tenanted property, therefore, the only suitable cover is landlord insurance.
This applies even if you are an accidental landlord – the owner of property that you decide to let but without consciously seeking to build a business as a buy to let landlord.
Further reading: Why is landlord insurance more expensive than home insurance?
So, what is suitable landlord insurance – what does it cover?
Although all insurance policies of course vary in their details from one policy to another, insurance for landlords typically has at its core:
- cover for the structure and fabric of the building itself against such potentially major incidents as fire, flooding, impacts, vandalism and theft;
- similar cover for those contents of the let property that are owned by the landlord (tenants’ possessions need to be insured separately by the tenants concerned);
- in the case of some landlord insurance policies, it may also be possible to safeguard against malicious damage caused by the tenants themselves.
An equally important component of landlord insurance is public liability indemnity – protection against the potentially very costly claims made by tenants, their visitors or members of the public who may have suffered injury or had their property damaged because of the landlord’s breach of his duty of care.
This element of cover is necessary because of the landlord’s particular responsibility for the safety of tenants, visitors and members of the public. If it is shown that the landlord’s actions – or failure to act – amount to negligence in his duty of care, a substantial claim in compensation may follow.
As already mentioned, the landlord – and even the accidental landlord – is effectively engaged in a business. Business income is generated through rents charged, and the aim is to keep that income at least equal to the costs and expenses (including any mortgage repayments) incurred in letting the property.
For that reason, if the let premises becomes temporarily uninhabitable following an insured event, landlord insurance typically may offer compensation for the resulting loss of rental income.
Additional let property insurance options
There are also additional elements of landlord insurance cover you may wish to invest in such as:
- Accidental damage insurance. This is optional but may be valuable if you’re concerned about accidental damage to the property or its contents, such as a broken window or stained carpet.
- Residential Let Legal Expenses and Optional Rent Protection. This can cover losses if your tenant fails to pay the rent as well as help meet the expenses and costs involved in pursuing any civil dispute with your tenant or defending any claim that may have been made against you as the landlord.
Next steps
Ensuring you have the most suitable landlord insurance is essential. If you have any questions relating to landlord insurance or to get a quote, please do not hesitate to telephone us on 01702 606 310. Our UK-based team will be very happy to help you with any queries.
