How to Survive the Financial Upheaval

It’s been a rollercoaster year financially, so we’ve gathered our best tips for landlords looking to protect themselves and their investments.

On today’s Mashroom Show, we’ve got a curated selection of tips from experts to help you through the current financial turmoil because while the Bank of England’s interest rates have stuck at 5.25%, the bumpy ride isn’t over yet…

In this episode:

  • Chartered tax advisor Richard Cunningham goes through the pros and cons of incoporating your business
  • Landlord Action’s Paul Shamplina gives his advice on avoiding rent arrears and what to do when they occur
  • Mashroom’s Lettings Specialist Emi Steadman follows up on Rent Guarantee Insurance
  • Mashroom’s Buildings Insurance Specialist Chris Potts wraps things up with a rundown of the five most common mistakes you could be making on your insurance

Should landlords incorporate?

A limited company is a separate legal entity, with limited liability. The shareholders liability is limited to the share capital that they actually put into the company that requires a director to run and to operate it, and it’s that protection that provides comfort.

So that’s what a limited company is, but should landlords start one? Well, there are some big upsides.

Potentially, the first one is low tax rates. Corporate rates are lower than personal income tax rates. So, at the moment, you’re looking at 19% of your corporate rates. They are actually going up to 25%. But the first £50,000 will be 19%. Thereafter, there’s a kind of marginal relief up to £250,000 after which you’re into 25%.

One of the big advantages is that you’re only subject to income tax to the extent that profits are actually drawn from the business, this creates an advantage particularly where you’re highly geared. So you’ve got a big mortgage, large capital repayments.

However, while there are pros to consider, there are sadly some downsides too. The biggest one being Capital Gains Tax. Want to learn more? Check out the whole episode on limited companies.

Are landlords at more risk of rent arrears now?

With tenants spending the best part of 40% of their wages towards rent, is it any wonder that landlords are worried about potential affordability issues?

Paul Shamplina, of Landlord Action, has seen his fair share of rent arrears cases and feels that landlords are going to have to be much more stringent now when it comes to referencing. On the bright side, these days landlords have a bigger pool of tenants to draw on, so it’s easier to find just the right people.

Despite all the referencing, even the best tenants can fall into arrears due to unforeseen circumstances and Paul firmly believes that you should give them one chance to rectify the situation. If they have otherwise been a great tenant who may simply be between jobs, for example, working out a repayment plan for the missed rent might be best for both parties.

However, once they’ve exhausted this one chance, the landlord needs to take steps:

  • Try to mediate. Send requests in writing, so that you have proof that you tried to resolve the issue
  • Consider a Section 8 notice. Once they’ve hit 2 months rent arrears, you can consider serving a Section 8 in order to repossess the property, it also gives the tenants 14 days to pay the outstanding rent or come to an arrangement
  • Take the next step. If you aren’t able to come to an arrangement, you’ll have to issue a possession claim at court and get a hearing date

If you’re looking for more insight from Paul, then check out our full rent arrears show.

How can a landlord protect against rent arrears?

Mashroom’s Emi Steadman spends a lot of time talking to landlords and knows that rent arrears are amongst their biggest fears, thanks to rising mortgage rates that they’d have to cover out of their own pocket if the rent was missed.

While you can reference your tenants to assure yourself that you’ve got the best people, as we said – there’s always the chance that something unforeseen could crop up. In those instances, how can you ensure that it’s not you trying to find the cash to cover that month’s mortgage repayment?

Well of course Emi would recommend Mashroom’s Rent Guarantee Insurance! It’s a pretty key element in the landlord arsenal when it comes to protecting your investment, so you should definitely look into it. You can also book a call to talk to one of our experts if you’ve got any questions about it!

What common insurance mistakes are costing landlords?

Finally, we’ve got Chris Potts, one of Mashroom’s Buildings Insurance Specialists, to break down some of the common mistakes you could be making with your insurance cover. Any one of these mistakes could cost you dearly and it’s likely you’re making more than one! As Chris points out, on average, 20 -23% of Buildings Insurance claims are rejected.

So what are the top 5 common Buildings Insurance mistakes?

  1. Incorrect information. You’ve got to make sure that the information that you provide is accurate and correct, this includes accurating reporting on things like flat rooves or previous claims you’ve made
  2. Mistakes regarding risk. You have to accurately report on the risk, so if your property goes into a long-term void period, for example, you need to let your insurer know
  3. Understanding peril. You need to understand what perils your policy covers, this means speaking with your broker and thoroughly reading your policy so that you don’t claim for something that isn’t covered or think you can’t claim for something that is
  4. Valuing your asset. You need to make sure that your rebuild cost is accurate. Costs are rising, so your build cost has likely shot up, and if you’ve recently renovated this could also impact the rebuild cost
  5. Occupation issues. If you think your property is going to be unoccupied for over a period of 30 days, let your insurer know!

That’s just a summary, but if you want more details, check out Chris’s episode of The Mashroom Show.

The next episode of the Mashroom Show is airing on Friday the 20th October. In the meantime, why not head on over to Facebook and join the Mashroom Landlord Community Facebook page. There are over 8,000 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. 

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Mashroom is an appointed representative of Adelphi Insurance Brokers Ltd. Adelphi Insurance Brokers Ltd is authorised and regulated by the Financial Conduct Authority (FCA). Their Financial Services Register number is 594620, with permitted business activities being introducing, advising, arranging, dealing as agent, assisting in the administration and performance of general insurance contracts and credit broking in relation to insurance instalment facilities. You may check this on the Financial Services Register by visiting the FCA’s website, or by contacting the FCA on 0800 111 6768

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