When the banking crisis struck back in 2008, mortgage lending in the UK virtually ceased as lenders became wary of the toxicity of sub-prime mortgage loans and raised their lending criteria (and lowered their Loan To Value ratios) to unprecedented and highly restrictive levels, virtually killing the property market.
This meant that properties became financial millstones for many people who were unable to sell, resulting in an upsurge of reluctant or “accidental” landlords who were able to take advantage of a booming rental market caused by the fact that potential property buyers were forced to hand over substantial deposits in order to be allowed a mortgage or were unable to obtain mortgages due to the tightening of the lending criteria and were subsequently forced to rent!
During the lean times, families who had outgrown their owned property, but were unable to sell it on the open market, moved into PRS rental accommodation in order to re-house their families. This left them with their former home that they were still paying a mortgage on and the only alternative to selling was to offer the property for rent.
Reluctant landlords were either under-educated over legal obligations or so scared that their mortgage companies would decline or withdraw finance that many new landlords went into renting out their properties without informing their mortgage lenders.
Unfortunately for the rest of the UK landlord community, this unethical and illegal practice is still continuing to this day, which means that there are still properties to let within the UK Private Rented Sector (PRS) without proper Landlord and Buy To Let insurance.
Reluctant landlords didn’t want lenders to know that they were letting property, so many turned a blind eye to their insurance obligations, leaving themselves and their tenants exposed to all sorts of potential problems.
Landlord insurance should cover multitude of eventualities including loss of rent following damage from an insured peril like fire or flood damage, £5 Million (GBP) of property owner’s liability should there be an injury or death to individuals on or near the property, (for example tenant’s visitors, guests, meter readers, postman or indeed anyone else) and accidental and malicious damage cover.
Landlord’s contents should also be insured in case the landlord is unfortunate enough to find themselves with a bad tenant that causes damage, although if the landlord has done things properly, tenant referencing should allow the landlord to select only the best tenants.
The UK property market is now stabilising and should the market continue to show similar signs of improvement observed towards the back end of 2012, (despite the UK heading into a triple dip recession) and mortgage lending continuing to increase, there could be a mass exodus of reluctant landlords leaving the UK PRS and cashing in.
However, until that day comes, how many landlords are risking everything because they have not got permission or consent to let from their mortgage lenders?
Without the correct permissions obtained from mortgage lenders, it is possible that landlords who have taken out what they think is adequate insurance cover, may find that their policies are in fact null and void.
Get the right permissions from your lenders before letting property and then make sure you have proper Landlord or Buy-To-Let insurance.
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