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Richard Finan, Director of Arc Legal Assistance, has been discussing the insurance impact of plans in the 2015 Budget to legalise private tenants sub-letting a property, and other developments in the landlord sector.
The 2015 Budget outlined plans to allow tenants to sub-let their property on a short-term basis. The reform has raised a number of potential issues for the insurance industry, mortgage lenders and the property rental investment sector.
The main challenge that insurance providers face is the ability to effectively assess a risk in a property where the tenant is unknown.
Both buildings and rent guarantee insurers, along with mortgage providers, require the landlord to vet any potential tenants; ensuring they are of ‘good standing’ prior to letting the property. Where the landlord loses this control, they could be in breach of the terms of their insurance policy or mortgage.
The result of such a change could see insurers and mortgage providers reassess their risks, taking into account this inability to vet occupants. Whether this leads to some providers withdrawing from the market due to increased risk exposure, or those remaining providers considerably increasing premiums, will depend on the final detail of any legislation passed. But certainly, increased risks will be a significant factor in the shape of a future market.
Tackling ‘retaliatory evictions’
Looking at other issues in the landlord market, we have seen the Deregulation Act 2015 set out new legislation preventing tenants from becoming victims of ‘retaliatory evictions’. Under previous legislation, a landlord could bring a tenancy to an end in or after the original tenancy period by issuing two months’ notice. The new Act prevents a landlord from doing this if the tenant has registered a complaint relating to the condition of the property.
Arc Legal support this reform as it protects good tenants from being evicted because of a legitimate complaint. However, there are issues for responsible landlords who could be penalised as a result of fictitious or exaggerated complaints. The Act means it is now easier for a tenant to raise these types of complaint, which can prevent the landlord from regaining possession of the property.
This is particularly relevant where a tenant has rent arrears. Previously, a landlord could conclude the tenancy at the end of the agreed period quickly, regaining possession of the property, rather than trying to bring the tenancy to an end specifically because of the arrears. The Act could have a significant impact on Rent Guarantee Insurance, as longer possession proceedings equate to higher rent claims. This could lead to increased premiums for this valuable cover for landlords.
Increased possession costs
Another significant legislative change that impacts Rent Guarantee Insurance is the increase in Court Issue Fees, which has seen the cost of pursuing possession through the court rise by 10%. As a result, insurers may have to increase their insurance premiums.
Arc Legal’s Legal Expenses and Rent Guarantee Insurance policy also covers the legal costs to recover possession of the property for the landlord, and will therefore be effected by any increase in fees. The move to increase fees was designed to make more affordable housing available to the public, and curb bad practise by those landlords taking advantage of current housing issues.
We support the reasons behind the legislation, however consider the recent changes to have been poorly thought-out in relation to landlord-tenant relationship.
All these potential developments will, not only take control away from good landlords, but also leave them exposed to additional costs and risks. This may force landlords to question whether investing in the private property rental market is a viable and sensible opportunity. Ultimately, the changes could lead to a worsening of the housing problem, not an improvement.
Richard recently spoke to Post magazine on some of the issues effecting the landlord insurance market. For the full article, please visit www.postonline.co.uk