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It’s been quite a tricky time for landlords over recent years. Instability has gained traction and the
risk factors have exponentially risen, leaving landlords wondering if investing in the buy-to- let
market has been worth it all along.
When it comes to risk, there’s little doubt that it’s become ever more prevalent considering the
economic impact since 2008 and the continual fragility still plaguing the UK. From section 24 tax
changes to universal credit, landlords are encumbered with ever more uncertainty.
It’s also evident that referencing standards have essentially stagnated and failed to adapt to changes
in the market and this presents a real problem for landlords, especially when it comes to
safeguarding their income. Even now, the industry at large is still firmly structured around basic
referencing or “three point referencing” as we call it, with financial reports and references being
obtained from both landlords and employers where possible.
This, of course, has been one of the most intrinsic factors regarding inadequate risk management
from the outset and leaving landlords exposed to a plethora of dangers.
So why do landlords need insurance? At first, the answer may seem obvious. After all, it’s about
protecting landlords from the prospects of uncertainty, the multitude of “what-if” scenarios that
could become reality overnight. What if the tenant loses their job? What if the tenant falls into
difficult circumstances that prevent them from paying? What if relations breakdown? You get the
But it’s ever more important for landlords to understand how change functions; it’s about
understanding the uncertainty and the strategies that can be deployed to offset downturns. And it’s
also about understanding what the rent means to you as a landlord.
And this is where referencing can only meet halfway. Sure enough, referencing that is evidence
based will largely determine risk in its present format, but it will not be enough to determine
changes that turn negative moving forward. As the famed economist John Maynard Keynes put it:
“We assume that the present is a much more serviceable guide to the future than a candid
examination of past experience would show it to have been hitherto. In other words, we largely
ignore the prospect of future changes about the actual character of which we know nothing”
That’s the reality every landlord faces. Referencing invariably is not always enough and irrespective
of current circumstances, it is the changing circumstances that are extremely difficult to capture,
which is precisely why safeguards are needed to offset that risk.
It’s not just the sudden loss of income to contend with, it’s the impact of what that loss of rent will
be and what future expenses a landlord will have to pay if say an eviction process takes place. Can a
landlord in the myriad of change foresee and account for the cost? Very few landlords will say yes
and this is precisely why rent guarantee insurance (RGI) must be apart of every landlord’s armoury.
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