In the words of a blog posted by the Property Investment Project, don’t let anyone claim they can teach you everything there is to know about being a landlord. The specifics depend on the type of property or properties you let, the kind of tenants you have and even your own personality.
A few basic lessons, however, might be in order so that the whole business of becoming and being a landlord is less overwhelming than it might otherwise be.
Against that background and focusing specifically on the all-important question of let property insurance, here are some frequently asked questions (FAQs).
Being a landlord – how does it work?
The principle is a simple one – you invest your hard-earned cash or money you have borrowed by way of a buy to let mortgage, in the purchase of a property you then let to tenants in return for the regular payment of rent.
As the landlord and owner of the property, you are responsible for maintaining your property, but you also have a long list of responsibilities and obligations, some of which are legal obligations, and which are outlined on the government website.
Do I need to be qualified?
One of the reasons for the widespread popularity of buying to let is the fact that you need no formal qualifications – but commitment, hard work and every lesson gained from experience are still going to be required.
If the property you let is a House in Multiple Occupation (HMO), however, you need to meet certain criteria that are less concerned about your competence as a landlord, but rather that you are a “fit and proper” person. So, you are without a criminal record and have no convictions for breaching landlord laws, regulations or codes of practice.
What rent can I charge and how much is it going to cost me to do so?
Although your buy to let business naturally looks forward to maximising rental income, you also need to be realistic – to attract and retain responsible tenants and reduce the number of expensive voids.
Careful research of your area and the rents being charged for similar properties, maintained to the same standards, may give you a good clue to what is reasonable. You might also want to consult a letting agent about a realistic rent for the property you are offering.
The principal costs of running your buy to let business are likely to include the mortgage repayments (typically, in the case of buy to let mortgages, these are likely to be interest-only mortgages), the cost of repairs and maintenance, any letting agent’s fees, and landlords’ insurance.
What do I do with the deposit I ask my tenants for?
You asked for a deposit as security for any damage or breakages your tenant might cause during the tenancy, the payment of rent and other bills when they fall due, and the possible cost of cleaning the premises when the tenancy comes to an end.
As with any security deposit, it needs to be returned – less any deductions that are agreed – to the tenant when the tenancy ends. That means there needs to be sufficient money available to you to make that payment.
To safeguard the deposit – in the interests of both you and the tenant – the Tenancy Deposit Protection scheme requires that any deposit is held for safekeeping by an officially approved third party, who releases the money, in proportions agreed by you and your tenant, at the end of the tenancy.
Do I need landlord’s insurance?
Although there is no legal obligation to have landlords’ cover, the answer to the question is almost certainly going to be ‘yes’.
You’ve perhaps made a considerable investment in buying the property and rely on the generation of sufficient rental income to repay any mortgage and keep it properly maintained and repaired. So the biggest nightmare is losing it all from incidents such as fire, flooding, subsidence, for example, as well as other risks to the building and its contents.
The landlords’ insurance we arrange here at Cover4LetProperty is specially designed to offer the protection which the structure and fabric of your property needs (in the form of buildings insurance), but also to safeguard your business interests – providing you:
- indemnity against claims of liability (if a tenant, one of their visitors or a member of the public is injured or has their own property damaged on or within your premises); and,
- loss of rental income (up to pre-set amounts) following a significant incident which leaves your property temporarily untenantable.
Furthermore, if you are buying the property with the help of a mortgage, the lender is almost certain to require a certain level of buy to let cover to protect their interest in the structure and fabric of the building. Note that the cover required by your lender is sufficient only to safeguard the outstanding mortgage balance on the property and may not cover the full cost of rebuilding in the event of a major disaster.
Why do I need specialist let property insurance, rather than any other type of property insurance?
As a professional landlord, the risks you and your property face are simply different, in part, to those of a standard owner-occupier.
That is why a typical owner-occupier buildings insurance and contents policy will not cover a property that is being let out either totally or even in part (e.g. a room or two in your own home).
In practice, there may be many variations and additional cover elements provided (such as loss of rental income cover) – and it is typically a broker’s responsibility to help you understand what those additional areas are and how they might benefit you.
What are let property insurance brokers?
The role of a broker is to be a centre of excellence in terms of knowledge of the marketplace, helping clients access the most suitable product for their own unique needs and circumstances.
Putting it practically, we may know, for example, that a given insurance company offers automatic cover for subsidence – something that is no longer universal. The broker’s job is to bring that (and other things like it) to the attention of a potential policyholder to provide them with informed choices.
What does let property insurance cover offer by way of protection?
Of course, that depends upon an individual policy and the only way to be sure is to read the policy detail carefully.
Typically, however, a policy may provide cover in four main areas:
- the structure and fabric of your property itself (typically called buildings insurance);
- any contents you may have in it (landlords contents insurance);
- indemnity against the risks of you being sued by someone who has suffered injury or property damage as a result of your property (landlord liability indemnity insurance); and
- compensation for the loss of rental income – following a major insured incident which leaves the property temporarily unlettable, pending repairs and reinstatement.
Do these areas include all-risks cover?
That is unlikely to be the case – but maybe an optional extra offered by your insurer.
Typically, all let property insurance policies will contain conditions and exclusions that exist as much for your protection as to limit the insurer’s liabilities.
For example, some policies may exclude cover for electronic items that are included in your furnishings as part of the rental deal. There may be no alternative but to read and compare the policy details to be clear.
I am refurbishing my let property, which remains unoccupied by tenants during the building works – what is the insurance position?
Typically, insurance companies see a significant difference, in terms of risk, when properties are unoccupied – when renovation work is underway, or there is a longer than usual void between tenancies, for example.
Burglaries and vandalism may be more common, and there is further risk arising from problems (e.g. leaks) going unnoticed and creating major cumulative damage.
For that reason, policies typically won’t provide cover for properties that stand unoccupied for more than 30 to 45 consecutive days – the exact period varying from one insurer to another. It is a condition that may also typically apply to owner-occupier and owners of let properties.
To protect your interests in such situations, it may be advisable to take out renovation insurance.
What is a resident landlord?
The term is more or less self-explanatory and refers to someone who rents out a room or rooms in part of the property in which they continue to live as their only or principal place of residence.
The definition and an overview of the essential rights and obligations of such a landlord are outlined on the official government website, in its description of the Rent a Room scheme.
Why should I rent out a room in my own home?
The Consumer Association’s magazine, Which?, suggests that renting out a room in your own home might prove a handy and realistic way of earning yourself some extra money – a prospect that few of us are likely to turn down.
More altruistically, perhaps, you might also reassure yourself that you are doing your bit to help solve the nation’s current shortfall in suitable, affordable housing.
What are my responsibilities as a resident landlord?
You have a basic responsibility for ensuring that any room or rooms you let are safe and in a reasonable state of repair.
Provided this is the case, however, you are entitled to charge whatever rent you think is reasonable and is likely to attract the kind of tenant or lodger you deem to be appropriate.
So, is it likely to be worth my while to let a spare room?
Although you have an obligation for maintaining any let rooms in a safe and reasonable condition, you also stand to gain a useful tax advantage.
Under the government’s Rent a Room Scheme you may claim up to £7,500 against your tax liability for the income you have made from letting your spare rooms.
But what if it doesn’t work out with a particular lodger?
One of the attractions in letting space in your own home to someone who may be regarded as a tenant is that the same rules do not apply as if it were an entirely self-contained let.
If they have a room but also share some facilities with you, such as your kitchen, your lodger or tenant has what is known as excluded occupation. Typically you may ask them to leave – evict them in other words – whenever you like and without the need for any kind of court order.
If your lodger or tenant has a more or less self-contained space in your home, with no need to share any facilities whatsoever, he or she may be able to claim basic protection under the housing laws, and you will then need a court order to secure their eviction.
Where do I stand as far as home insurance is concerned?
The majority of privately owned homes, of course, are protected by one or another form of home building and contents insurance – what is the impact on this safeguard if you are letting part of your home to someone else?
Different insurers may have different policies, so your first step needs to be letting your insurer know that you are planning to let space in your home to a lodger or tenant.
The answer might be a simple change of policy (to one which includes landlord insurance), an increase in the premiums you pay to continue the cover, or a termination of the cover you presently enjoy, and its replacement by another.
For reasons that may seem reasonable enough, your current insurer is likely to be especially concerned about the effect any such let might have on the insurance used to protect the contents of your home.
Additional considerations when having a lodger
Unlike landlords of self-contained dwellings, you are not subject to the requirements of the tenant’s deposit scheme and may choose any appropriate way of managing the deposit you may ask of a lodger or tenant.
If you are paying the bills on water, electricity, drainage, and water, you may charge whatever proportion of these costs you consider necessary in the rent that you charge.
If you have a mortgage on your home and do not inform your mortgage provider that you are letting out a room, it could cause problems further down the line – so do get in touch with them.
You remain responsible for the payment of Council Tax, however, and may need to inform your local authority if you no longer qualify for a single person’s discount on the council tax.
Becoming a resident landlord may be easier than you think and simply involves letting out to someone the spare room or rooms that you may have in your home – and, as the time of writing (May 2020) you stand to benefit from a useful tax allowance of £7,500 per year tax-free from letting out furnished accommodation in your home. This is halved if you share the income with your partner or someone else.
Do you have more questions?
We hope these landlord insurance Faqs have proved useful. If you have any question relating to your property insurance, please do get in touch with us. We’d be delighted to help.