News Review: General Insurance
Buy-to-let may offer a golden opportunity
by Kevin Paterson, sales & marketing director, Assurant Intermediary
the decision by the Bank of england to hold interest rates at their record low of 0.5% for another month probably drew a sigh of relief from many homeowners and lenders alike. the threat of rising interest
rates has led to warnings of a “tsunami” of home repossessions. does the same cloud hang over the buy-to- let market? there has been a mini
boom in this sector. according to figures from the council of mortgage Lenders buy-to-let lending rebounded in 2010 with lenders granting 102,400 new buy-to-let loans, 10% more than in the year before. in 2009 the number of new buy-to-let mortgages had fallen by nearly 60% from 2008. mortgages for landlords rose in 2010 from 11.8% to 12.3% of all outstanding home loans. the buy-to-let market
appears to be driving the current surge in valuations. connells has stated that one in ten of its valuations conducted now are for property investors. rents are at a record high in many areas and tenant demand is robust - not surprising given current lending conditions in the residential mortgage market. Falling house prices matched by the competition amongst buy-to-let lenders, the buy-to-let market has proved an attractive one for investors.
Buy-to-let cover But no investment is risk free and landlords need adequate insurance protection on a number of levels - and this of course provides a business opportunity for intermediaries. Landlords’
property
insurance covering buildings and/or contents is the most obvious policy to discuss with buy-to-let clients – but beware, just as in household insurance, cover can vary from provider to provider. it is essential that you
thoroughly explore the type of property to be insured and understand the type of tenant your client has in mind. Failure to do so could result in inadequate cover for your client. Some policies are specific
to property type, including furnished, unfurnished, unoccupied
pending
residential let and some properties of non-standard construction. others are more restrictive. equally, some policies cover a wide range of tenants including students, persons in receipt of dSS benefits and asylum seekers. others are more selective.
Exclusions an obvious point perhaps, but one worth making, is to check the exclusions, just as you would with any insurance cover. as escape of water has become a trigger for claims, particularly during the harsh winter we have just experienced, more and more insurers are excluding loss or damage as a result of escape of water from tanks
18 mortgage introducer AUGUST 2011
or pipes if a property has been unoccupied for 30 days or more. this exclusion period
can also extend to include a period before the property was purchased. and of course, there are
optional add-on covers that you should discuss with buy-to-let clients, such as landlords’ legal expenses. these add-ons can help to tailor the cover to suit the exact requirements of your client as well as generate more revenue for you. However, going back to
where i started, the threat of arrears and repossession is just as valid in the Buy- to-let sector as it is in the residential market. and while the low interest rates may well be helping some homeowners stay on top of their mortgage repayments, rising unemployment and the increasing cost of living are having an effect on the rental sector. Landlord action has claimed it has seen its number of instructions
against
defaulting tenants rise by 11% year on year. You might argue that,
knowing the demand for rental property is high and with an eye on their finances, landlords are less tolerant than they might have been in the past and are taking action more promptly to rid themselves of defaulting tenants. this could be particularly true of those landlords new to the buy- to-let game. these so-called ‘amateur’ landlords may have stretched their finances to try and take advantage of
the current market and need to protect themselves from falling behind with their mortgage payments.
Incentive package i recommend discussing some form of short-term accident, sickness and unemployment protection with your buy-to-let clients. Why not discuss some sort of incentive package to encourage landlords to introduce their tenants to you? it could give them peace of mind knowing that tenants have the opportunity to discuss relevant protection to cover their rent if they do have an accident, fall ill or are made redundant. You will need to ensure you discuss policy options that allow rental payments to be taken into consideration. one thing is for sure,
there is a growing sense of positivity amongst landlords about the outlook for buy-to-let. the annual Landlord Survey published by cHL mortgages last month revealed that 67% of respondents were positive about the future. around 43% suggest that rental demand is better now than six months ago and that it is sufficient to cover mortgage repayments, maintenance and cost. and 33% of landlords said they were looking to buy more investment properties in the next 12 months – up from 28% last year. these figures should
encourage intermediaries looking to build a revenue stream in this sector. right now, it looks like they have a golden opportunity.
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