Buy-to-Let brings added business to brokers
When Barclays Bank published the financial results for its mortgage business it said it had not entered the buy-to-let market because it considered the product to be too high risk. Investment in property has typically been regarded as `safe as houses' (indeed many see it as the perfect alternative to a turbulent stock market) so was Barclays right to be so cautious? And if so, does that provide any opportunities for insurance brokers and intermediaries?
I think it's absolutely fair to say that buy-to-let investments have their inherent risks and should not be regarded as a financial panacea. But for a true picture of the risks involved, I wouldn't turn to Barclays for information, I'd turn to lettings agents and specialist insurance intermediaries.
Probably one of the clearest differences between buy-to-let and other investments is the duty of care beholden on the property's owner.
The investor landlord has an obligation to ensure their tenant is safe and comfortable. This means having reliable local trades people on hand in the event of out-of-hours emergencies and general maintenance, as well as specialist insurance for the buildings and liabilities, and the landlord's and tenant contents. Getting this wrong will hit the landlord in the pocket and damage the income from their investment.
Landlords have legal obligations for health and safety, and risk fines of up to £5,000, or even imprisonment, if they fail to carry them out. They can also face legal costs to pursue unpaid rent or force an eviction, which would quickly depreciate an investment.
So while buy-to-let has its risks, I don't believe those risks are out of proportion to the potential for good returns. And importantly, the risks can be managed.
There are two key ways to do this: tenant referencing and rent protection insurance. Both are low cost, simple and readily available via brokers.
A professional tenant referencing service assesses a tenant's ability to make consistent rent payments by scrutinizing their credit and employment history and seeking previous landlords for personal references.
Rent protection and legal expenses insurance makes up the shortfall of monthly rent when tenants refuse to pay and, if need be, covers the costs of obtaining vacant possession. Several months lost rent and legal costs can easily run into four figures, whereas the typical annual insurance premium may be as low as £150. At Letsure, we estimate that up to 70% of landlord's purchasing our buildings insurance also take rent protection cover.
With low borrowing rates set to continue, the ease with which it's possible to obtain a second buy-to-let mortgage means the opportunities for borrowers and intermediaries are enormous.
With so much competition for tenants, and so many borrowers needing to make good returns on their investments, the better-informed landlords are likely to have the advantage. Those are the landlords who are likely to be open to the idea of buying cover which protects their returns. And those returns, based on current conditions, are likely to be more favourable than those available from other forms of investment.
While current market conditions last, the opportunities for property investors are great. But by taking professional help and advice, and buying the relevant forms of protection, the opportunities are even greater.
