How landlords can protect their rental income
Month in, month out your tenants' rent flows into your bank account and the mortgage payments, insurance premiums and other costs flow out. If you have planned your rental investment carefully then the incoming rent will always be more than the outgoings.
However, what happens if the rent suddenly stops coming in? There are countless reasons why this might happen, and they cannot all be avoided by careful vetting of tenants.
Reasons for non-payment of rent
The most obvious reason why your rental income might be interrupted is because tenants simply decide to stop paying. They might be withholding rent due to a dispute between you about the condition of the property. Or perhaps they're just trying to stay for free until you can evict them.
Tenants might also be willing to pay rent but struggle financially, whether because they lose their job, fall ill or face competing drains on their finances, such as a legal dispute. It could be that they fall victim to identity fraud or theft, or that a problem with their bank account means the automatic payment of rent is disrupted.
Another common cause of rent shortfall is that one set of tenants has left but replacements cannot be found. This might mean going a few months or more without receiving any rental income. In the meantime, council tax and maintenance costs will continue to accrue. Could you cover the costs?
What rental shortfall means for you
Having less money coming into your bank account is clearly undesirable, but if you lack the funds to pay the mortgage and other costs associated with your property, the impact could be severe.
For example, non-payment of mortgage payments could potentially mean your mortgage provider repossesses the property. Being unable to pay your bills, for example to the locksmith who changed the locks after the last tenants left or the cleaning company that carried out a deep clean, might spoil long-established relationships you rely on to maintain your property portfolio.
In addition, if you fall into financial difficulties as a result of the rental shortfall it could affect your credit rating, which would impact your ability to borrow in the future.
Why you need rent guarantee insurance
Rent guarantee insurance provides you with peace of mind that you are protected against periods without income. Most policies offer protection of up to £2,500 a month if a tenant is unable or unwilling to pay the rent you are owed.
This type of policy also provides help with legal costs in case you need to take action against your tenants. This might involve eviction proceedings or enforcement to recover damages where items from the property are ruined or go missing. Legal expenses cover also provides help with tax issues, property disputes and health and safety claims.
What you can expect from rental guarantee insurance
You will be able to call a 24/7 helpline to get legal advice about your situation if a dispute arises or tenants stop paying rent. This can often be an invaluable preventative measure, helping you to take the right steps to prevent any dispute from escalating further or lasting longer than necessary.
If required, your insurance will pay you the shortfall in rent and provide assistance with pursuing a legal claim to recover money owed to you.
Any insurer offering rental guarantee insurance will require you to choose your tenants carefully to minimise your risk. Most responsible landlords do this anyway because the risk posed by an unreliable tenant is considerable.
Your insurer is likely to require you to carry out a credit check on the proposed tenant indicating whether they have any County Court Judgments against their names, especially recent ones. You must also carry out an ID check and seek references from the tenant's employer confirming that their salary is adequate to cover the rent.
If you are letting a property to students or DSS tenants, your insurer may require a check form a recognised tenant reference company to ensure that the tenant is suitable.
Are you protected against rental shortfall?
Would you struggle financially if you had to go without rent for a period? Protect yourself with rent guarantee insurance today by talking to Stride.