Landlords Insurance Dilemma

Landlords Insurance Dilemma

8:32 AM, 9th August 2012, About 12 years ago 16

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I have received an email from one of our readers who has a Landlords Insurance Dilemma and I’m not confident enough to answer his question absolutely. If you can help please comment below, no blatant advertising though please. I will not approve comments such as “Call XXX on YYY I am an insurance broker and I can help”. However, I will approve useful comments which answer the question in detail.

Landlords Insurance Dilemma – Readers email …

“I am in the army so I have a pretty busy day job.  I purchased a property for just under a million pounds in London and hopefully one day I will live there – the yield is rubbish but I’m optimistic about capital growth.  As I said, I want to one day justify living in it – so it was bought with the heart not the head!

I have landlord insurance on this property, however I am concerned as I have a residental mortgage on it. My first concern is that that any claim I ever try to make on the landlords insurance might lead to the mortgage company knowing that I’m letting it and either calling in the mortgage or increasing the mortgage rate (perhaps even asking for retrospective payment from the rent money I already received). More importantly though, could the insurance company refuse to pay out if they find out that I don’t have permission from my mortgage lender to let the property?

I hear it’s quite common for people to have buy to let properties on residental mortgage which, if I’m right may also mean that their property is uninsured, even if they have purchased landlords insurance. 

I do intend to change my mortgage but I want to wait until its fixed initial two year period is over – however maybe I should try to do this before this point as I am pretty sure my landlord insurance will not cover any claim on a property that has a residential mortgage. At the end of the day, insurance companies do tend to have a reputation for looking for any reason not to pay out!

Any advice / help you can give would be wonderful and I’m happy for you to make a blog out of this issue of residental mortgage & landlord insurance if you want.

Regards

Chris”

I can’t see why an insurance company could dispute a claim on the basis that the landlord doesn’t have permission to let from his mortgage provider. as I said in the introduction to this article though, I wouldn’t want to stake my reputation on that.

What do you think?


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Comments

11:02 AM, 10th August 2012, About 12 years ago

If you bought the property on a residential mortgage with the intention to rent it out immediately you should have applied for a buy to let mortgage. With the rip off fees associated I can understand why you would apply for a residential product, but this is fraud, plain and simple. I can't think of a reason better than this for an insurer to decline a claim, however valid it might be. Fortunately for you the communication between lender and insurer is non existent but it does leave you vulnerable to have a genuine claim denied.

The easy way round this is to ask the lender for 'consent to let' which they will give you. The deal you are on won't change until it expires then you can go to a buy to let product. This ensures the insurer won't have a reason to decline you should a claim situation arise, and give you peace of mind. Your occupation gives you a very good reason to rent as all you would need to tell the lender is that you have been posted somewhere.
Hope this helps.

Industry Observer

13:54 PM, 10th August 2012, About 12 years ago

Steve
If the deal Chris is on was for residential prop[erty and on an owner occupied basis I can assure you after almost 25 years working for Nationwide there will be plenty in the small print to enable the lender to correct the loan to the terms it should have been on in the first place - plenty.
Chris if you try to act fast and loose sometimes you fall over. I agree with all the advice on coming clean. It will cost you, maybe a fair bit, but if you can afford to buy £1M properties my guess is you can afford it and are closer to being a Colonel that a Corporal!!
If you are still serving you have another problem under Queen's Regs I imagine the MoD doesn't look too kindly to this type of practice in its officer corps either?
The expense now to regularise the issue will be far less than the possible costs if there is a claim and lender and mortgagee do somehow come together.

19:34 PM, 10th August 2012, About 12 years ago

For a property of that value - i would not risk keeping it on a residential mortgage. In this current climate, insurance companies will find any excuse/loophole to NOT make any payouts and you could be in financial ruins. Do the RIGHT thing. Switch the mortgage to BTL.

Joe Bloggs

12:43 PM, 12th August 2012, About 12 years ago

its quite clear chris is not talking about a block policy!

Joe Bloggs

12:48 PM, 12th August 2012, About 12 years ago

do you agree that advice should be knowledge rather than hearsay based?

Puzzler

8:44 AM, 14th August 2012, About 12 years ago

Some lenders ask for a copy of the insurance schedule so they will know..e.g. Platform and JP Morgan who bought some mortgages from Platform. I get a request every year for a copy of it showing their interest. Other lenders I have used don't.

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