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Don’t forget tenants need protection too

Why are tenants sometimes overlooked when thinking of family protection? Life assurance, income protection and critical illness cover are as vital for tenants as they are for homeowners.

The challenges of affording rent are just as great as the challenges of affording monthly mortgage payments.

Arguably, the need for a focus on income protection for tenants is even greater than it is for homeowners with the latest LSL Property Services Buy-to-let Index showing that 9.9% of all rent is in arrears.

There was a surge in the number of people looking for rented property in April. The end of the Stamp Duty holiday refocused the minds of some on finding a good house to rent rather than one to buy and rents rose for the first time in three months, putting the budgets of tenants under more strain.

The Council of Mortgage Lenders’ recent figures show year-on-year growth in buy-to-let lending.

In Q1 2012 buy-to-let was almost one-third (32%) higher than a year earlier, so it stands to reason that the number of new tenancies may well be on the increase.

Thinking of it purely on a business basis, it makes perfect sense for those offering protection to speak to tenants as well as homeowners, as they are likely to be the homeowners of tomorrow. Looking after their insurance and other financial needs today may well mean you are the first person they turn to when they are in a position to take out a mortgage.

The Council of Mortgage Lenders’ recent figures show year-on-year growth in buy-to-let lending

Similarly, the increasing number of landlords offers a huge opportunity for both mortgage and protection advice, especially given that the latest landlord sentiment survey has revealed that most landlords intend to extend their property portfolio within the next year.

There are now 1.4 million buy-to-let mortgages outstanding, worth £159.4bn. Buy-to-let accounted for 12.8% of the value of outstanding mortgages at the end of Q1, according to the CML. At a time when many advisers are struggling to place normal residential mortgages this is a market that shouldn’t be overlooked.

Landlords all need buildings insurance and sometimes they need contents cover too, while rent indemnity insurance increases alongside the growing number of rental arrears.
While these are relatively low income products for advisers, they present the opportunity to build relationships with people who may go on to take out several mortgages as well as other protection products with you in the future.

There is still plenty of lender appetite for buy-to-let and rates are comparatively low. Instead of concentrating on first-time buyers, a focus on actual and potential landlords looks like a sensible move. There will inevitably be a drop in the number of first-time buyers over the next few months as many will have brought their purchases forward to take advantage of the Stamp Duty holiday.

While there does look to be a tightening of funds from lenders as the year progresses, lenders still need to build their balance sheets to meet Government guidelines. Their focus will be on good margin products with a healthy deposit and the opportunity for good returns.

While arrears on buy-to-let are likely always to be higher than on a residential mortgage, they still offer an excellent opportunity both for lenders and for advisers.

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