Buy To Let Updated:
Landlords have been dealt a blow recently with the revelation that rented properties could be excluded from the Government's flood insurance subsidy fund, which could leave them facing significant increases on their insurance premiums.
Flood Re, the scheme designed to cover properties that are at high risk of flooding, was intended to put a cap on the cost of insurance for vulnerable properties to ensure premiums remain affordable for homeowners. It was already established that new builds, high-value homes and commercial properties would be excluded from the scheme, but it's only recently become apparent that the private rented sector is defined as "non-domestic" and therefore potentially excluded too.
This, argues industry organisations, has the potential to put millions of homes at risk of sky-high premiums, including between 50,000 and 100,000 rented properties that are in high flood risk areas (according to figures from the Residential Landlords Association).
Industry bodies have therefore urged the Government and insurers to rethink the current plans for Flood Re, just a few days before the proposals are set to go before the House of Lords.
Paul Smee, director general of the Council of Mortgage Lenders, said: "We find it difficult to believe that the original policy intention was to exclude a whole swathe of residential property from the stated aim of ensuring that affordable flood insurance continued to be available across the market.
"Given that this appears to be an unintended consequence, we strongly urge legislators and the insurance industry to reconsider the proposals and ensure flood cover remains available on homes as people would expect."
However, in better news for BTL investors, it could be a good year in terms of tenant arrears and returns. Rents have been steadily increasing over the last year but the level of severe tenant arrears actually fell by 20% over 2013, according to the latest LSL Tenant Arrears Tracker, even though there was a marginal rise in the last three months of the year.
Gross yields are equally as positive with LSL anticipating that, if rent rises continue at the same pace as they have been, an average BTL investor could expect to make a total annual return of 6.6% over the next year – the equivalent of £11,234 per property. Hopefully, that'll be enough to give landlords more confidence despite the prospect of insurance hikes.
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