5 Reasons Your Properties May Be Unprotected
So you’ve got your Buildings Insurance. But is it correct? Will it actually pay out when you need it to?
What happens when you do all you can to protect yourself with your Buildings Insurance, tick all the boxes and dutifully hold all the correct insurances, only to find, when you need to use them, that you’re not actually covered?
In this episode:
- We chat loopholes with Buildings Insurance expert Chris Potts, to uncover the truth around why many people are falling foul of comparison sites, and finding they are left high and dry when they need to make a claim
- How to make sure that not only are you getting the best deal, but are also getting the best cover at all times
- We also catch up with Mashroom’s very own Emi Steadman, who gives us the low down on other insurances, and how to make sure you’re sorted on those too
How often is failure to pay out an issue?
We all rely on our Building Insurances to do what we need them to do. If there’s a disaster, we expect them to have our back and do what they say on the tin. How often is it the case that they don’t actually do so, and landlords are left footing the bill themselves?
‘I would say on average, you’re looking at 20 -23% of Buildings Insurance claims are rejected’, admitted Chris. ‘Insurers will basically adhere to the terms and conditions in the policy, pure and simple. You pay money to have the cover in place, but of course, there’s the intricate details which we’ll go into.’
That’s a scarily high number! Nearly one in four policies could potentially not do exactly what they’re set up to do!
Ok, in order to make sure none of us ever experience this, let’s go through the top reasons why this might happen… incorrect information entered at the start must be one of the biggest issues?
‘Yes, absolutely. This is the classic case at point of inception when you actually enter your quote details with your broker or online agent, you’ve got to make sure that the information that you provide is accurate and correct’, stressed Chris.
If you don’t, it could be dependent on what information is incorrect. For example, there could be a partial flat roof that has not been mentioned, or maybe it could be down to financial adversity, or previous claims that you might have had that haven’t been disclosed.
Ah, the flat roof conversation! They always seem to crop up when we discuss Buildings Insurance! Are they that much of an issue when it comes to insuring a property?
‘Absolutely! if you’re not asked that question in quotation stage, I would definitely highlight it to your broker if you have one on your property! Statistics will show that a flat roof will actually have an ingress of water more often than a pitch tall roof.’
Honest insurance mistakes
Talking insurance can be confusing, and a lot of us rely on prompts from the platforms to help us ensure the relevant boxes are ticked. If they don’t ask the right questions, there’s a chance we might not know to provide the information and things may be overlooked… is that an issue?
‘It may bear a consequence’, said Chris. ‘It will be down to the insurer, and they can use their own discretion. It really could go either way on that basis. If it’s honest and innocent enough, they may apply some flexibility. But if it is deliberate evasion… yes, that’s going to cause a big problem’.
Risk is the main issue when it comes to insurance, presumably it’s the same when it comes to Buildings Insurance. Is risk higher for a building that is lived in by a tenant as opposed to the property owner, or is it still based on the property location//age/build etc, and how is the risk status decided – can it be gotten wrong?
‘If you are living in the property yourself, as opposed to letting the property out, it is rated on a different basis. So, you need to update the insurance exactly of what the current situation is,’ explained Chris. ‘Let them know the tenant you have in there, what their occupation is, and of course, updating whenever the property is unoccupied’.
Do you need to keep them updated of any changes to your tenant’s situation, say if their job status changed, from working when they took on the tenancy to unemployed and in receipt of benefits, for example?
‘When the policy comes up for renewal and then you can update them’, said Chris. ‘It would be unfair during a midterm of a policy to update your insurance broker every time there was a slight change. However, when the policy comes up for renewal, your insurance broker may be in contact to see if there have been any changes in the last twelve months’.
Is there anything significant enough that you do have to let them know mid-way through the contract?
If you are having any building work, I would. You can always ring up your insurer, that’s what they’re there for, or if you think the slightest change can actually alter anything, let them know.
Insurance policy peril!
Being in peril is an alarming thing. However, in insurance, the term ‘peril’ is standard isn’t it?
‘Yes. Your policy is covered under insurance wordings of perils and contingencies’, laughed Chris. ‘This would be fire theft, flood, storm, escape of water and such there usually be 12 to 14 of them. Now, the peril of not being covered, is if it was anything that happened gradually, like wear tear or depreciation, anything happened over a period of time, as opposed to an instantaneous incident.’
So wear and tear isn’t something that is considered a peril! Good to know. How do you differentiate between W&T and damage with regards to insurance, is it the same way you would when dealing with deposits?
Landlords have different definitions of what is wear and tear, and what is damage. If the carpet has got a bit fluffy – that’s wear and tear. If there’s a big red wine stain in the middle of a carpet, then an incident has occurred, and that will come under accidental damage. That’s where you have to make sure that you know that you’re actually properly covered between the two.
‘Absolutely, you need to have proof that the incident has occurred during that insurable period. And it’s down to that insurable peril, wear and tear and this would be across the board with insurance policies would not be covered.’
‘You must allow for the maintenance of replacing the carpets and vinyl flooring over a period of time. Of course, if there is any incident like fire, theft, floods, storms, etc, that has damaged them, then of course, that will be covered, but anything just down to wear and tear would not be covered.’
Valuing your asset
Rental properties are a valuable asset at the moment. Tenants are clamouring for great homes, and good landlords are hard to come by. However, Buildings Insurance doesn’t take into account the requirement of a great property, it’s just down to the value of the actual bricks and mortar.
So, if you are unlucky enough to have to look at a rebuild value, how do you make sure you have the right insurable value for your property, after all, everything is more expensive now than you think it should be!
‘There’s been a lot of change in the last twelve months due to building cost and materials increasing,’ said Chris. ‘I’d always make sure that you have the correct rebuild value, insurable amount that you’re paying the policy for.’
‘There are certain websites like the Royal Institute of Chartered Surveyors which you can use, inputting your room sizes and such and get an idea. Professional valuers and professional surveyors will give you the two prices and the market value, but there’s no rule of thumb.’
I would always make sure if in doubt, I would ensure that the market value, then you know that you’re not going to be underinsured.
Could you end up being accidentally underinsured though, if the costs for materials and labour shoot through the roof over the duration of your policy? If you’re insured for £100,000, and then you discover it costs £200,000 to rebuild the house, is it really up to you to make up the difference?
‘This will be down to the discretion of the insurance claims team’, said Chris. ‘They would have a look at it, some may apply an average clause, which means how much you were underinsured %age-wise, is what they would pay on the claim.’
‘Some may ask for the additional premium of what you should have paid up until that point and then honour it. It is totally down to the discretion of the insurer.’
Of course, nobody wants to default on their insurance. It’s an important part of protecting your property, and nobody wants to do anything to put that at risk.
However, can you inadvertently do so, just by your tenants honest actions… If they take a long holiday, or travel away for work, can leaving your property unoccupied for a long period leave you in potential insurance hot water?
‘If you think your property is going to be unoccupied for over a period of 30 days, let your insurer know’, stressed Chris. ‘This will usually be the period of time where they would want to be updated.’
If you have intentions to either sell the property, let your insurer know, they can advise you on the terms and conditions that you would need to adhere to make sure you have cover in place.’
They don’t need to know if your tenant nips off to Greece for a fortnight? What’s the difference?
‘When it’s empty, things can happen to it. Nobody knows it’s happened, it’s pure and simple, said Chris. ‘It’s far more than likely an escape of water claim, for example, that can build up and escalate claim costs. They want somebody visiting the property at least every seven days, for example, but insurers prefer a property to be occupied, whether it’s a tenant or unoccupied.’
Okay. So, if your tenants have gone on holiday for two weeks, does that void the policy?
‘No, I would always use a rule of thumb if it’s up to a period of 30 days, then you need to let your insurer know and check your wording’, explained Chris. ‘Some might be different, some maybe 60 days, it depends on your insurance policy. You need to make sure that either you go and visit the property, or you let the insurer know. I would let the insurer know to just to confirm they’re okay with that’.
Is there anything else that people find themselves tripping up over when it comes to Buildings Insurance?
‘The rule of thumb is that the best way of making sure that you are actually probably covered is to discuss it with an expert in the field, discuss it with an insurance broker,’ stressed Chris. ‘They’re trained to actually take your requirements and talk you through the cover levels, and the relevant sections landlords need’.
‘I would always speak with a person as opposed to a click on a mouse’!
Of course, ensuring your building is covered is only one part of the puzzle. As a landlord there are plenty of other hiccups that can arise, and as such, plenty of other insurances available that keep you safe.
We caught up with Mashroom’s very own Emi Steadman, to chat about the other insurances that can make your landlord life easier.
Chris stressed the importance of engaging with a broker to make sure you get the very best Buildings Insurance product for your needs. Mashroom is an online platform, how does that work?
‘You can either call up and someone will book an appointment for you, or you can just go through the website, book an appointment at a date and time that will suit you then one of our amazing insurance team will call you do some fact finding with you, they’ll go away, they search the whole market to get you the best quote, they’ll come back to you in price. And it’s as easy as that’! explained Emi. ‘They’re all very friendly’!
Is it just Buildings Insurance that they can help with?
Mashroom is a completely self-serving platform. So, any other insurances that we provide, such as home emergency or rent guarantee, you can just go online and purchase. You don’t need to call anyone, you can do it while you’re watching TV at seven o’clock. You can do it at two o’clock in the morning. You can do it at any time.
Insurances are notoriously traditional. Pay for cover, claim when you need to. Not a lot has changed in many years. Is that the case with Mashroom’s products?
‘It’s very simple, and clever! You just go onto the platform, it will prompt you for the postcode of the property that you’re letting out. The system will ask you questions about the property, and take you through that process,’ explained Emi. ‘Our amazing customer service team will do their verification on their side and then before you know it, your property is in the market. And you’re able to sort of self-serve and sort your viewings out, and then we do everything else for you including the progression of the tenancy, your contracts, your rent collection and yes, even your insurance. I can’t stress how easy it is’.
So you can build in your insurance as part of a lettings package?
‘Essentially, what you get is advertising the property, progression of the tenancy – referencing your contract, registering your deposit for you. Once the tenant moves in, then you’ve got rent collection with same day payouts. You’ve got us chasing the rent for you. If it’s late, for whatever reason, you’ve got deposit dispute handling at the end of the tenancy, you’ve got legal cover, you’ve got Home Emergency Insurance, and you’ve got Rent Guarantee Insurance and all of that for 5%.’
5% for everything seems like a sensible option, but if you still want to split things up, what’s the one insurance (Buildings Insurance aside obviously!) that you don’t think any landlord should be without?
‘If I had to pick one, it would be the rent guarantee’, mused Emi. ‘With Mashroom, you’ve got your Rent Guarantee Insurance and your legal cover included, so it’s killing two birds with one stone. But honestly, I would do the five % because it’s all included, and that’s the best direction to go for everything!’
Landlord News: Cranking up the base rate
Hands up who shook their head with disbelief the other day when the Bank of England hoiked the base rate up again?
It rose from 5% to 5.25%, which is a significant jump for anyone facing mortgage repayments or a remortgage, with price hikes on the horizon yet again. Another hit for the private rental sector. Most of us will have already felt the price boom in our pockets, and this is a further kick in the teeth (and wallet).
Halifax has issued a stark warning about how these constant creeps are having an impact on landlord’s business models, with Kim Kinnaird, director of Halifax Mortgages saying:
It remains to be seen how many may choose to exit and what that could mean for the supply of properties available to buy.
Although mortgages are definitely going up, what does the base rate rise mean in the wider picture though? The gut reaction is to weep and wail at a base rate increase, but is that actually the case…?
House prices have dropped marginally – the average UK price dropped 0.3 % in July, around £1000 in cash terms, but over the past six months there really hasn’t been a hugely dramatic shift. The average home in the UK now costs £285,044, compared to £285,660 in February, although clearly repayments on this figure will have changed significantly, and that places a lot of people out of the buying market.
For landlords, this could actually be seen as a positive thing. If people aren’t able to buy due to increased repayment costs, the PRS is their only option, and with house prices remaining relatively stable, there’s great opportunities to extend your portfolio (although a good chat with your mortgage broker is definitely a good idea, you don’t want to over stretch and leave yourself high and dry)!
However, if you choose to act, now is the time – who knows what the Bank of England will do next!
Immigration is a political hot potato. With more and more people travelling to the UK through illegal and unsafe means, it is becoming something that we are all duty-bound to be more aware of, especially as housing providers.
Legislation is in place already through the Right to Rent scheme to ensure that nobody without the right to live within the UK is able to rent a property from a private landlord. The government is planning a crackdown on private landlords to ensure that all of the proper checks are being carried out, with an increase in fines to the landlord if they find that anyone is failing to carry out their side of the deal.
Immigration minister Robert Jenrick has said:
Unscrupulous landlords and employers who allow illegal working and renting, enable the business model of the evil people smugglers to continue.
The checks, which have been in place since 2016, require landlords to check the immigration status of potential tenants, record and store their documents and report anyone who does not hold the proper documentation to the authorities. Failure to carry out the correct checks, resulting in a landlord renting a property to someone residing in the country illegally, could result in a fine of £10,000 per tenant – an increase from the current rate of £1,000.
If a landlord persistently lets to illegal tenants, the fine skyrockets. Currently it’s £3,000 per case but will be going up to £20,000. The same applied for lodgers. In extreme cases (and this would be really extreme, the rogue landlords who make a living out of providing accommodation for people they really shouldn’t) there is also the potential for a prison sentence of up to five years for renting property in England to someone who you knew or had ‘reasonable cause to believe’ did not have the right to rent in the UK.
The new fines are coming into play in the autumn, so it is important to make sure that you are doing everything you need to do beforehand. Of course, this legislation has been in place for some time, and it has become as much part of renting a property as issuing a gas safety certificate and carrying out an inventory, but just a reminder! This isn’t a step you can afford to miss!
The next episode of the Mashroom Show is airing on Friday the 25th August, and we’ll be chatting leaseholds! With leasehold reform hitting the news recently, we’re going to be digging into the changes, and explore whether or not your leasehold could be endangering your income…
In the meantime, why not head on over to Facebook and join the Mashroom Landlord Community Facebook page. There are over 5,000 landlords regularly chatting, sharing queries and questions and engaging with industry experts, so it’s a great place to have a chat about what’s on your mind, and get some great advice.