End of Furlough Warning for Landlords – Time to Guarantee Rent?

A leading lettings industry figure has warned landlords that, as the government’s furlough scheme is set to draw to a close in just a few weeks’ time, considering some form of rent guarantee insurance should feature as a priority if they want to plan ahead and avoid financial voids where tenants suddenly become unable to cover their rental payments.

Senior lettings industry figure Zoe Bywater has issued a warning to landlords that they should consider obtaining rent guarantee insurance ahead of the close of the government’s Coronavirus Job Retention Scheme on 30 April 2021.

The furlough scheme currently pays 80 per cent of wages, capped at £2,500 per month, with bosses required to continue paying any employer National Insurance and pension contributions.

Once the end of April has come and gone, employers face paying the salaries in full of around nine million staff who are currently supported by the scheme.

Landlords need to plan ahead

Bywater is concerned that there is widespread uncertainty over how the close of the furlough scheme will affect everyone. She is counselling landlords and lettings agents to plan ahead by taking some form of rent guarantee insurance to remove some of the worry.

Evictions expert Paul Shamplina is in agreement with Bywater. He told a PropertyTribes webinar that landlords will need to ensure they carry out more stringent tenant referencing, insist on guarantors, or arrange rent guarantee insurance so they are not negatively affected by the end of the furlough scheme.

“Rent guarantee insurance has become more expensive during COVID as the risk has increased, but you have to balance that against gaining peace of mind – because it’s the best part of a year to evict a tenant at the moment,” he said.

How does rent guarantee insurance work?

Rent guarantee insurance pays landlords their rental income if tenants default on their payments.

Rent guarantee insurance isn’t the same as cover for ‘loss of rent’ cover, which only pays out when a property cannot be let because of some form of damage that’s covered on buildings insurance, such as flood or fire.

Normally, landlords can only make a rent guarantee insurance claim once tenants have been in arrears with their rent by at least a month; have caused deliberate damage to the property; have refused to leave the property following an eviction notice, or if there is a dispute over renovations or repairs. The insurance will then cover outstanding rental payments for a pre-set period, usually 6-12 months.

Will rent guarantee insurance suit every landlord?

Some policies will insist that landlords issue a Section 21 notice to tenants in order to qualify for a payout. Whilst bailiff evictions are currently on hold until 31 March 2021, and landlords are required to give six months’ notice before possession action can begin, Section 21 notices can still be served in order to satisfy the requirements of those rent guarantee insurance policies that require them.

However, it is important to be aware that rental guarantee insurance will generally only offer protection up to £2,500 per month for a maximum of 12 months. Some policies will pay half the rental income whilst new tenants are being sourced, but usually only for three months after the previous tenants have been evicted.

Landlords should also consider that there may be an excess to pay on the rent guarantee insurance policy, and that individual policies may carry exclusions, such as not being able to make a claim within the first 90 days of the policy’s life, or being unable to claim for tenants who display a history of defaulting on their rent.

What is the alternative to rent guarantee insurance for landlords who wish to protect themselves as the furlough scheme ends?

A rent guarantee scheme is different to rent guarantee insurance. There are no warranties or conditions, just straightforward reassurance that your rent will be covered, come what may.

With a guaranteed rent scheme, you don’t need to go through a lengthy claims process. You don’t need to evict tenants or pay legal fees for a Section 21 notice. And you don’t need to ever worry about chasing your rent. Because even when the property is untenanted, you will be paid on time, in full by standing order, every month.

For truly guaranteed rent in the most challenging of times, turn to homes2let

At homes2let, we have been taking care of landlords and property investors for many years. Our expertise is called upon by landlords Croydon and London wide who know that we truly care about their properties, their investments and their need for peace of mind.

Our guaranteed rent scheme includes a full property management service and covers all the fees and costs involved in letting a property, including legal fees. To learn more about how our scheme works, you are welcome to get in touch.