Buy to let investment is one of the preferred choices of long term security for UK contractors. For many of our clients, buy to let (BTL) mortgages form an important part of their retirement plans.
It’s no surprise. Monthly rental income can provide a welcome boost today. But it’s the capital appreciation over the long term that’s the main attraction. It can – and often does – provide better yields than a pension plan.
How safe an investment is a buy-to-let mortgage?
The Association of Residential Letting Agents reports strong demand for rented properties. Moreover, that demand will continue to outstrip supply in 2013.
Rental property prices in England and Wales offer yet more insight. Based on their last three months’ figures, the forecast is again positive.
The average investor could make an annual return of 2.7% per property over the next 12 months. In actual cash, that’s some £4,451 per property.*
Beware: more and more tenants are falling into to arrears
Taking the figures we have to work with, you might think buy-to-let is a risk-free investment. But there is a downside.
With the buy-to-let market thriving, demand is nudging up the price of rent. This is great for would-be landlords.
But the higher the rent, the greater the risk of tenants falling into arrears. Sure enough, more tenants are struggling to keep up with their payments.
As a landlord, you’re reliant on tenants paying their rent and paying it on time.
Two rungs don’t make a right
A survey earlier this quarter by Law of Property Act receivers highlights the problem. Their report estimates that around 99,000 tenants are two or more months in arrears.
The immediate forecast is for this problem to worsen, too.
The tough economic climate is the first driver of this change. The second is that people are still struggling to get onto the property ladder.
Would-be first-time buyers are having to rent as lenders tighten their criteria. Mortgage providers want greater security, including larger deposits and better credit ratings.
Yes, these are great motivators to get contractors interested in investing in buy-to-let properties. But all potential landlords must understand the heightened risk involved, too.
Did you know you can take out Landlord Insurance?
What we don’t want to do is deter anyone from investing in their first property. As a landlord, you can protect yourself against non-payment of rent.
In fact, you can take out a bespoke insurance policy that protects both your assets. Cover can protect both your rental income and the investment property itself.
Here are the basic components that a solid landlord insurance policy should cover against:
- accidental damage;
- unpaid rent;
- malicious damage by tenants to buildings or contents.
There are many more elements of protection that make up our cover. The last thing we want is to see your dream investment become a nightmare.
Just be aware that not all policies are equal. Different providers cover certain elements as standard, but others as optional extras. Make sure that, if your investment strategy has a weakness, you shore it up.
Does your Landlord insurance provide adequate cover?
This should go without saying, but we will anyway. Make sure that the cover you choose does just that: protects your property!
Some insurers offer the basics, others additional benefits. For example, Legal and General provide a free legal helpline.
This avails policyholders of expert advice on any legal problems that may arise. The service is available around the clock 365 days of the year.
Other optional benefits include home emergency cover. You know it; we know it: calamities don’t obey a 9-5 schedule.
If an essential domestic appliance is gonna break down, it’ll happen out of office hours. Knowing that your policy includes 24 hour call-outs, including labour and materials, is essential.
Cover like this will protect your property in the event of an emergency such as a burst pipe or break in. Going the extra mile will ensure that both you and your tenants can sleep easy.
What are my options?
There are many cover options available for you, from basic to all encompassing. We need to understand more about you before we can advise you on the right policy.
Our advisors can source you the most relevant protection through any number of insurers. If you’re new to the Buy-to-Let, let us guide you through the benefits of different policies. We can recommend the most appropriate policy to meet your requirements and budget.
Even if you’re well versed with a policy in place, there’s never a wrong time to review your options. Rules, regulations and your circumstances change.
We’ll ensure that your landlord cover remains relevant to you. In doing so, any unforeseen crises won’t derail your fast-track to retirement. Full steam ahead!
*Source: Figures from Mortgage Introducer.
Author: John Yerou
John Yerou is the owner and founder of Freelancer Financials; a trading style & trade mark of the award winning Mortgage Quest Ltd. One of the most recognised names in providing mortgages for contractors and freelancers across the UK.
In 2004 John began his career in Financial Services as an independent mortgage adviser and broker. John has been instrumental in negotiating bespoke underwriting for contractors with high street lenders.
His presence in the industry as a go-to expert is growing by the day and he is regularly cited and writes in publications both locally and nationally.