Understanding financial products for landlords

August 16, 2019
Taryn Lee-Johnston

These days it’s arguably more important than ever for landlords to do their sums properly in order to be confident that their investments will bring in net returns which justify the risk involved in holding them.  While landlords may, understandably, be focused on legalities such as tax-management and practicalities such as setting rents at a level which will cover all costs (since it is now illegal to charge tenants for anything other than charges set out on a government “whitelist”), it is also very much recommended to think about which financial products are best suited to your situation.

Mortgages

For landlords, possibly the single, biggest question to answer is whether or not they would prefer a repayment mortgage or an interest-only mortgage.  Both are feasible in the buy-to-let market so landlords looking for an interest-only mortgage should still find a decent selection from which to choose.  When making a decision, a landlord will need to consider whether it is more important to them to build up equity in a tangible asset (i.e. a property) or to maximize affordability and, hence, yield.  Those who wish to build up equity will need to look at a repayment mortgage.  Those who wish to focus on affordability and yield are likely to be best served by an interest-only mortgage.  Investors who are still undecided are recommended to consider the fact that “portfolio landlords” are now subject to more stringent affordability criteria.  That being so, if you are interested in building a more extensive property portfolio, then you may find it easier to meet these criteria by using interest-only mortgages (on at least some of your properties).

Landlord’s insurance

Possibly the most obvious purpose of landlord’s insurance is to protect the landlord against issues caused by tenants, such as rent defaults and damage to property.  Insurance can certainly fulfil a valuable purpose here.  Another valuable purpose it can fulfil is to protect landlords against unforeseen (and unforeseeable) circumstances which can have a negative impact on both them and their tenants.  Let’s put this another way.  As a householder, you have to think about catastrophes such as fire and flood, which could render your home uninhabitable even if only (hopefully) on a temporary basis.  As a landlord, you have to think about how such events could impact both you and your tenants.  Having insurance cover in place could be a huge safeguard against events which might otherwise destroy your livelihood.

A general point on financial products for landlords

For the sake of total clarity, we’d like to point out that if you are looking for financial products to use as a landlord, then it’s important that you only look at financial products which are designed for landlords.  Resist any temptation to use products intended for residential homeowners.  You will not be covered and may be committing fraud.

Personal insurance

This may seem like an odd suggestion, but if you are at all actively involved in managing your property portfolio and/or are contributing in any way to the financing of it, then you might well want to think seriously about making sure that you have insurance in place to allow you to get the help you need to maintain your property portfolio, even if you are incapacitated.  Taking this a step further, if you are, in turn, dependent on another party to support you so that you can keep going with your responsibilities as a landlord, then it may be very wise to take out personal cover for them too.  For example, if your partner is a homemaker and takes care of the children while you take care of bringing in an income, then insuring them can help with the cost of childcare should they become unable to provide it.

 

Your property may be repossessed if you do not keep up repayments on your mortgage.

 

For general insurance, we act as introducers only.

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