General Insurance Analyst Thomas McCourtie has been working on our upcoming “UK Private and Commercial Landlord Insurance” report. Here, we ask him about the key findings of his research, new and developing trends, and how he expects the market to develop over the coming years.
Briefly discuss the main points you came across when researching the landlord insurance market?
Landlord insurance is an interesting market, as there is a certain degree of overlap between the personal and commercial sides of the industry. The most notable point is the large proportion of residential landlords without the required insurance on the properties they’re letting to tenants. Many landlords hold standard home insurance products instead of an official landlord policy, meaning they are underinsured and left exposed to risks that would not be covered by ordinary home insurance.
How are insurers tackling the landlord market, and are there any similarities to the home insurance space?
Recent years have seen the landlord market effectively become a by-product of the housing sector. Rising house prices have meant that many consumers are unable to buy a first property, which means the appetite for rented accommodation has grown. In turn, this has increased the buoyancy of the landlord market, which insurers are continuing to benefit from.
The commercial sector presents a similar notion. High rent prices, particularly in London, are encouraging investors to look outside the capital, where office rents are cheaper and there is a better prospect of obtaining a greater return on the investment, i.e. a larger building space.
Where is the opportunity for insurers?
The value of the landlord market has somewhat fluctuated over recent years. Nevertheless, the number of consumers who own secondary homes is increasing and this gives insurers ample opportunity to target their products at those wishing to let their properties. This is especially the case in urban areas and large cities, where a high proportion of consumers live in rented accommodation.
Insurers are offering landlord policies for individuals who have purchased a second property with the intention of letting; however, they are also in the market for those who become landlords by accident, for example, through inheritance. This also gives insurers the opportunity to further expand their coverage of the landlord market by targeting those who have “accidentally” acquired a second home and who may be looking to use the property as an additional source of income.
What’s the outlook for the landlord insurance market and the challenges going forward?
The boom in the buy-to-let space has been a cause for concern for financial providers and also policy makers. Many have questioned the stability of the market and as a result, have sought to introduce tougher rules and tighter restrictions such as reductions in tax relief, an increase in stamp duty, and strict lending criteria. This is to ensure the sustainability of the market, and that those taking out buy-to-let loans are fully capable of keeping up with repayments, especially if interest rates were to change. These new rules are set to be introduced in April 2016 and will be implemented over the course of the next four years. Therefore it would come as no surprise if we saw a sudden surge in the purchase of second homes over the coming years before the new rules fully kick in.
On the commercial side, I would predict more investors and large corporations looking to set up shop in other big cities besides London. While the capital may be better for business, for example in terms of forming business networks, the recruitment of talented staff is also important. And with high rents pushing graduates outside of London, other cities such as Birmingham and Manchester are likely to benefit from those wishing to take advantage of the more affordable living costs and the better work-life balance.
By Thomas McCourtie, UK General Insurance Analyst