Is Rent Protection Insurance the same as Guaranteed Rent?
There is an important distinction to make here between rent protection/rent guarantee insurance and a guaranteed rent scheme. With rent protection insurance, the landlord will need to make a claim to their insurance provider once the tenant has met a fixed minimum for the amount of rent they have in arrears. Once the tenant has met this fixed minimum, the landlord can file a claim to recoup the lost income.
With a guaranteed rent scheme on the other hand, the company providing the service agrees to pay the landlord the full rental amount – regardless of whether the tenants have paid or not. This means that the landlord will receive their rent on the due date each and every month. This is especially useful for Buy To Let landlords who need to pay the BTL mortgage payments for the property each month.
Below, we go into more detail about the differences between guaranteed rent and rent protection insurance, the different variations in each category and the pros and cons of each service to help you figure out which options will be the best fit for you and your property.
What is a Rent To Rent Scheme?
A Rent to Rent scheme usually describes an arrangement between a landlord and a letting agent or other company where the landlord agrees to rent their property to the agent/company for a fixed rental amount. The agent or company will agree to pay the landlord the agreed amount on the due date each month for the duration of their contract (usually 6 or 12 months). The agent/company will then sub-let the landlord’s property to tenants, but for a slightly higher price than what they are paying to the landlord. This allows them to earn money on the difference between the amount they take from the tenants and the amount they pay to the landlord.
The landlord normally understands that the agent is charging the tenants a higher amount than what they are paying to the landlord each month, but they are happy to accept this due to the fact that they are guaranteed to receive their rent each and every month – regardless of whether the tenant pays or not.
Rent To Rent schemes can seem attractive, especially for landlords with Buy To Let mortgage payments to worry about, but they aren’t without their problems. Some Rent To Rent providers have received negative press in the past for failing to properly manage the tenancies on their books and ending up going bust when they can no longer afford to pay their landlords. For this reason, you should always conduct thorough research into a Rent To Rent provider before you agree to sign up with them. And make sure that you carefully and thoroughly read through any contracts or agreements before you agree to the arrangement.
NOTE: Before you jump into taking up a guaranteed rent service, you should take a look at this helpful article from the Telegraph that looks at the potential dangers of using rent guarantee companies – Landlords Warned of “Rental Guarantee” Pitfalls | The Telegraph
Is Rent To Rent the Same as Rent Protection Insurance?
In short, no. A Rent to Rent scheme guarantees to pay the landlord on the due date each month and the Rent To Rent provider will sub-let the property to tenants for a slightly higher fee to cover the money they pay out to the landlord and earn a small profit. Rent protection insurance, on the other hand, is an insurance policy taken out by the landlord to cover the costs of any unpaid rent should the tenants default on their rent payments.
With a Rent To Rent scheme, the landlord will receive their rental income on the due date each month, regardless of whether the tenants have paid or not. With rent guarantee insurance or rent protection insurance, on the other hand, the landlord will have to wait until the tenants are at least 1 month in arrears and will then make a claim to their insurance provider to recoup the lost money.
What About Rent on Time or Guaranteed Rent Schemes?
There are some other services available which will guarantee to pay your rent on the due date every month, but do not sub-let the property in the same way as a Rent To Rent scheme. These types of services are usually referred to as “Rent on Time” or “Guaranteed Rent” but they are normally only offered as add-ons to other more comprehensive services. For example, the National Landlord’s Association offer a Rent on Time service but you have to agree to let the NLA handle the rent collection and use their full tenant referencing service to be eligible.
Rent on Time services are usually quite a lot more expensive than rent protection insurance policies…
Using the NLA’s Rent on Time service as an example again, a landlord will have to pay 5% of the monthly rent plus a one-time set up fee of £125 to secure the Rent on Time service. Using a rental income of £1500 as an example, the landlord would pay £1,025 for 12 months cover (5% of £18,000 yearly rental income + £125 set-up fee) with Rent on Time.
Compare this to the £180 that you would pay for a 12 month Rent Guarantee Insurance policy with TheHouseShop, and it is obvious that you end up paying a substantial amount more to ensure that you receive your rent on the due date, instead of just recouping your losses.
Rent on Time services will also have much stricter eligibility criteria due to the fact that the provider is taking on a sizeable amount of risk in agreeing to pay out the rent each month even if the tenant does not pay. It is also likely that a Rent on Time service will have a maximum pay-out amount.