The ultimate way landlords can guarantee their rent and prevent hassle

Approximately 13 million people in the UK are currently renting their homes from private landlords, most of whom rely on their rental payments as a form of income. With the cost-of-living crisis looming, inflation increasing costs, tenants moving more often and the residual trauma of the eviction moratorium, it’s clear why landlords are more eager than ever to seek guaranteed rent.

There are three main ways DIY landlords achieve this – guarantors, advanced rent and rent guarantee insurance.

In this article, we’re going to explore each option, including which route is the most beneficial to both landlords and tenants, and evaluate their position in the future rental landscape.

Guarantors

What is a guarantor?

A guarantor is someone with enough money to vouch for tenants and pay their rent and damages if they are unable to. A guarantor must also sign the tenancy agreement so a landlord can legally seek funds for any tenancy breach. Being a guarantor is a huge commitment as there is no time or cost limit to their liability.

A guarantor co-signs a tenancy agreement and becomes liable to pay the tenants rent in the event that they can or do not.

Criteria to become a guarantor

The guarantor system is used by thousands of landlords across the UK, however there is no universal criteria. Most landlords prefer that this person has a long term relationship with the tenant and therefore be able to contact them or persuade them if required long after a tenancy ends. Close relatives usually fit this requirement. Secondly, landlords often require that guarantors are home owners because it's believed they will be more financially stable. Plus, if things go wrong the landlord may seek financial compensation against the value of their home.

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The guarantor trend is evolving

In the recent past, guarantors were mainly used for students or renters with particularly poor credit histories. Now they are used for a wide range of tenant circumstances even in cases where tenants are financially stable. This is particularly prevalent in South East England where 1 in 5 adults cannot secure a home without a guarantor, despite having more than enough funds to cover their rent.

From the landlord perspective this approach makes sense. The advantages of guarantors are clear - you gain a free seemingly unlimited source of compensation for the entire tenancy term. However not only does this approach have a negative impact on tenants, it isn't foolproof.

Unseen complications of guarantors

Guarantor use encourages discrimination and reduces the available tenant pool.

When it comes to finding the right home to rent, the process can be stressful for tenants – particularly in a post-COVID landscape. Rent rises and bidding wars are making it more complex than ever to secure a home, all before being asked to supply a guarantor.

Given the criteria and responsibility, it's not a surprise that not everyone can find someone able or willing to be a guarantor. Especially among over 35s who find it embarrassing to have to ask their friends and families to perform that role for them.

Landlords are therefore unwittingly being discriminatory by actively excluding certain tenants groups such as older tenants, expats, people with no family ties and those from underprivileged backgrounds.

Guarantor use does not eliminate the effort in getting compensation

Not all guarantors are equal. Having a guarantor doesn’t guarantee the receipt of a debt or remove the effort of chasing it down, especially if the guarantor’s circumstances have changed.

They may not be willing or able to pay and landlords may well end up having to go to court anyway especially if they are seeking a lot of money.

Advance Rent

As one BBC report shows, this is usually only demanded of tenants when a guarantor isn’t a possibility. This involves paying multiple months of rent upfront – usually up to 6 months.

The problem is, this leads to an obvious catch-22 – if people don’t know anyone with enough money or credentials to vouch for them, it’s entirely possible that they also won’t have the funds to cover 6 months’ worth of rent upfront.

This demonstrates just how exclusionary this system is, where people on the lowest incomes or without wealthy relatives are being penalised, despite earning enough money to pay a private landlord. And thanks to the growing cost of living and chronic housing shortage, the demand for advance rent in replacement of guarantors is spreading into the mainstream.

Another major issue with advanced rent is that it’s simply not sustainable. It usually only covers the first 6 months, so if tenants aren’t in a position to afford their rent after this period, income is no longer guaranteed. It’s also not unheard of for fraudsters to offer advanced rent and then stop paying once their term is up.

Rent Guarantee Insurance

Now we’ve covered guarantors and rent-in-advance, it’s time to take a look at another alternative: rent guarantee insurance.

The simple solution to maintaining profitability

Rent Guarantee Insurance is designed to safeguard landlords’ rental income in situations where tenants breach their tenancy agreement. Although it is often mistaken for Loss of Rent cover, it is very different. Loss of Rent insurance only covers landlords when damage occurs to a rental home that renders it too damaged for tenants to live in while Rent Guarantee Insurance (RGI) guarantees that a landlord will receive rent and any other damages – no matter the circumstances.

Landlords aren't legally required to have RGI, but it’s becoming an increasingly popular option for landlords across the country because of how convenient it is and the level of protection provided.

RGI is available as a standalone product which costs between £150-£300 and tenants must have passed a traditional reference check for the policy to be valid.

It often comes with legal protection - your insurer will file the paperwork and provide legal representation if you need to go to court for eviction and/or damages. This makes it ideal for busy DIY landlords who want to avoid having to chase tenants themselves.

The moral case for rent guarantee insurance

While guarantors and advance rent can scare tenants off with significant expenses or humiliating scrutiny, rent guarantee insurance balances landlord needs with tenant convenience. Putting aside £200 a year to secure your rental payments is a small investment compared to the thousands tenants have to find to cover advance payments.

💡 Husmus rent guarantee insurance puts landlords AND tenants first. We cover 12 months worth of rent and provide legal protection. Bonus is we cover all tenants including those with CCJs or on benefits. Find out more about our insurance today.

So those are the key ways DIY landlords can safeguard their income.