Buy To Let Mortgages & Insurance Explained
Many people are attracted to buy-to-let properties because they want to maximise their savings by investing them into houses or flats. If you can afford to take on and understand the risks of property investment, the rental income can provide you with a very lucrative source of cash.
But investing in a buy-to-let property isn’t as simple as purchasing a house or flat and listing it with a local letting agent. There are quite a few legal requirements you need to meet, such as keeping your tenant’s deposit safe in a government-approved tenancy deposit scheme (TDP) and having proper residential landlord insurance.
What Is A Buy-To-Let Mortgage?
A buy-to-let mortgage is basically the same as a standard mortgage, but there are specific criteria you need to meet to qualify for one. A mortgage lender will assess your suitability for a mortgage to ensure you can afford to take on and understand the risks of investing in property.
You need to have a good credit record and not carry too much debt from other borrowings, such as credit cards or personal loans. You may also need to be a homeowner and have a yearly income of over £25,000+.
Lenders usually have an upper age limit for buy-to-let mortgages of between 70 to 75, so if you are older than this when the mortgage ends, you may not qualify. For example, if you are 45 years old, when you take out a buy-to-let mortgage, you will be 70 when you finish paying it off.
What Is Buy-To-Let Insurance?
Buy-to-let insurance is landlord’s insurance designed to protect them from the risks associated with letting out a property. It is different to regular home insurance in that it covers the property owner against more things than standard buildings and contents insurance coverage.
Buy-to-let landlords have additional risks when insuring their property, such as loss of rent to cover any extended vacant gaps where the property may stand empty. This can give you more financial security to cover your costs should anything go wrong where you need to take your property off the letting market for a time to perform major repairs, renovations or rebuilds.
Do I Need Buy-To-Let Insurance For My Mortgaged Property?
While there is no legal obligation for you to take out landlord insurance to protect your property, most buy-to-let mortgages will come with a stipulation that you have it.
You will face many risks that you need to protect yourself against. For example, what if a tenant gets injured by a poorly fitted overhead cupboard falling onto them? Your tenant will be able to make a legal claim against you for compensation, which standard home insurance doesn’t cover you for.
Buy-to-let insurance is not only invaluable for a landlord; it is a necessity if you want to protect your investment from the many risks associated with letting a property, such as:
- Covering the repair costs to the structure of the property plus inbuilt features such as fitted kitchens, bathrooms and built-in wardrobes
- Flood damage
- Gas explosion
- Malicious damage and vandalism
- Storm damage
- Subsidence or landslip
- The rebuild cost of the entire property should it be lost to fire
- Water or oil leaks from pipes or heating systems
What will a buy-to-let insurance policy cover?
Buy-to-let insurance combines many protective elements designed to protect the landlord from the many risks they face when letting out a property.
Your insurance policy can be tailored to meet your needs, but in most cases, your policy will cover the following insurance protection:
- Building’s insurance: Buy-to-let building insurance covers the structure of your property, plus any built-in features such as kitchens, bathrooms and, in most cases, boilers. You will need to calculate the total rebuilding costs plus professional fees to assess how much building’s insurance for buy to let coverage to take out.
- Contents insurance: Your buy-to-let home insurance policy could include contents insurance if you plan to let out a fully furnished property. Your contents insurance will cover any upholstered furnishings, fridges and washing machines that come as part of the tenancy agreement.
- Public liability insurance: You must consider protecting yourself should your tenant get injured and you are found to be at fault. This could be from them tripping or slipping on poorly fitted flooring or if anyone you hire to carry out work on your property gets injured. Having public liability cover as part of your policy will protect you against hefty legal fees and compensation payments.
- Loss of rent: Many buy-to-let landlords rely on the rental income to pay their mortgage and expenses, so a long period without regular rent payments coming in can be financially devastating. Your buy-to-let landlord insurance can cover your needs until you can re-establish your rental income.
- Legal cover: Legal fees and expenses can significantly drain your finances, so it makes sense to add Landlords Legal Expenses Insurance to your policy. For a new landlord, dealing with tenancy agreements and keeping up with all legal aspects of letting a property can be overwhelming. This insurance can help protect you when dealing with legal matters relating to the tenant and the managing of the property.
- Multi-property cover: While most buy-to-let landlords usually let out a single property, it is not uncommon to invest in multiple properties. In this case, you can arrange landlord’s insurance to cover all of your properties rolled into a single policy from a provider. This makes managing your insurance much easier than having multiple policies spread around providers with different start and end dates.
- Home emergencies: Home emergency insurance is an optional extra that you can add to your policy. This insurance covers the costs of providing emergency assistance for your tenants. Most policies cover emergencies such as heating failure, flooding, water mains failure, power supply failure, vermin infestations and tenants having to gain entry due to lost keys.
How To Get The Best Deal on Buy-To-Let Insurance:
As with standard home insurance, you can choose from a wealth of landlord’s insurance policies. But it can help to read the small print and compare the coverage to find the best and most cost-effective deal for your needs.
To ensure you get the best possible buy-to-let insurance, you should:
- Get Your Numbers Right (Include calculating the rebuild value)
- Insure All Properties With One Company
- Increase Your Buy-To-Let Insurance Excess Costs
- Improve Your Property’s Security
- Don’t Automatically Go For The Cheapest Policy
The most effective way to lower your landlord’s insurance costs without compromising your quality of cover is to reduce your risks of theft and vandalism by adding security locks to windows and doors and installing an intruder alarm.
If you keep your rental property in a good state of repair and perform annual gas safety checks and regular smoke alarm testing, you will lower the risks of electrical fires, burst pipes, etc. This can help to reduce your premium costs.
Investing in a buy-to-let property can be a positive move for those wanting to maximise their savings. It is a great way to generate a steady return from a monthly rental income that you can invest into maintaining the property for your tenants, plus giving you financial security going into the future. As a business owner, it’s crucial to have a disaster recovery plan in place. Let Brisco Business assist you with business insurance solutions that align with your recovery strategy.
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