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Volatile lettings sector means increasing use of rental-protection products

Increased volatility in the private rental sector and rising costs for landlords and investors have combined to lead to an increased use of rental-protection products.

Tenant referencing and insurance provider FCC Paragon says 2017 saw record sales of rental-protection products as buy to let investments came under attack from the three per cent stamp duty surcharge on the purchase price of additional properties, and the phasing out of mortgage interest tax relief which started last year.

"We've found that as the stakes get higher, landlords are actually more willing to invest in rental insurance and protection products" says Bryn Cole, managing director of FCC Paragon.

"Arguably, a more regulated rental sector - with increased costs and government interference - has forced out many of the risk-taking investors and left behind the landlords who are keen to maintain a long-term project and protect it accordingly."

FCC Paragon says the trend for increased sales of rental-protection products has continued in the first three months of this year; it sold 40% more rent protection products in January 2018 than in the same month last year.

In the event that a tenant defaults on their rent, protection products cover the payment so landlords can continue to finance their buy-to-let mortgages.

"A perfect storm of continually rising rents and the prospect of further interest rate rises mean landlords want to be protected. The costs for landlords are higher than ever before and so understandably they want peace of mind that they are covered financially if something goes wrong" says Cole.

FCC Paragon suggests that landlords' increased commitment to rental-protection products could also be due to spiralling living costs, particularly in London.

"Even the most reliable of tenants could default on their rent due to a change in circumstances and as rent and living costs rise, unfortunately the chances of reliable tenants falling into arrears increases" Cole concludes.

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