Nigel Payne is managing director of Assurant Intermediary
As we all know rental prices are a factor of supply and demand. The last two years has seen demand outstrip supply. Rents rose for ten consecutive months last year while void periods reduced.
The UK housing market goes in swings and roundabouts so when property purchase slows then the rental sector benefits and vice versa. We have experienced a sustained period of growth in the rental sector and that has to start slowing down at some point - and it could well be that time is now. Just look at a few recent developments:
1. unemployment in the UK has almost hit the 2.5 million mark
2. landlord yields have reached 8.7% on HMOs
3. rent arrears are on the rise currently running at 11.7%
If you combine all these factors, the current bubble in the rental market may well be about to burst.
Now I am not saying this is all doom and gloom for the rental sector but there are signs it will be slowing and so landlords need to take a proactive approach to managing their portfolios. In particular, they need to start to look at how they can protect themselves from unpaid rents and there are a number of options open to them.
Rental guarantee insurance is widely available and should be considered as a prudent measure. However this only helps in part. If a tenant can’t pay then, yes, this type of insurance will help cover the landlord’s potential loss - but it doesn’t get round the landlord having to evict the tenant and facing a potential void period whilst they find another.
This is where income protection cover can play a part in any protection strategy. The tenant has the same issue as a homeowner in that they want to keep a roof over their head in the event of something unfortunate happening that impacts their income and makes it difficult to maintain their rent payments. Income protection can provide that cover to tenants. I have heard of cases where the landlord buys it on behalf of the tenant and includes the cost as part of the rental price.
So for brokers, it could be the right time to revisit your landlord clients to ensure they are protected in the event that the rental market starts to lose some of its attractiveness. Not only will it help protect their investment, but it could also prevent arrears and possessions in the buy-to-let sector hitting new heights this year.
Sources:
1. Office for National Statistics
2. Mortgages for Business Complex buy-to-let Index
3. LSL Property Services
