Landlord insurance premiums driven up by inflation

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After two decades of low property insurance premium rates, prices are being driven up by inflation. Steve Barnes, Associate Director at Hamilton Fraser Total Landlord Insurance, explains how inflation combined with other factors have created the perfect storm, and what this means for landlords.  

Historically, property insurance premium rates have been under-priced. This is because, although claims costs have been rising over the past couple of decades, insurance rates have not increased proportionately. This is now beginning to change as premiums are starting to rise to reflect the changing nature of risks, rising inflation and other economic factors, that property owners are exposed to today.

Inflation, the economy and the impact on insurance premiums

Inflation, which is measured by the Consumer Price Index (CPI) rose by 5.1 per cent in the 12 months to November 2021. This is the highest level in over a decade, according to figures released by the Office for National Statistics (ONS). And this figure shows a sharp upward trajectory in the latter half of 2021.

Coupled with rising inflation, the BCIS Materials Cost Index (BCI), which reveals the overall cost of materials, soared by 20.3 per cent in the 12 months to November 2021. Construction material costs in the UK are at their highest since the early 1980s, based on the annual growth of the index.

The combination of the rising cost of building materials and inflationary pressure on the economy in the aftermath of COVID-19, is being further exacerbated by labour shortages. While demand for new building works remains high in the UK, resources are hard to source and increasingly more expensive due to reduced supply. The shortage in skilled labour is triggering wage rises, with some builders reporting a rise in up to 25 per cent to attract the skills they need.

The result of all these factors combined is that rebuilding costs are spiralling. The cost of rebuilding a property after it has been damaged has risen dramatically because of escalating materials and labour costs.

Many economists and central banks are hoping the rising inflation we are currently seeing will soon ease. But even in the short term, as the market reacts to the steep increase in both inflation and the cost of materials, it’s vital that landlords make sure they are adequately insured. Buildings and contents insured will be automatically index linked at renewal, but it’s really important that they are adequate in the first place. At Hamilton Fraser Total Landlord Insurance, we would always make sure that your sums insured are maintained at adequate levels in this period of high building inflation.

In the long run, sustained higher inflation will result in higher payouts, and this will feed through into the pricing of premiums. To mitigate this, some insurers may reduce the amount of cover. So, it’s very important to check the small print and any exclusions, to make sure that you are still protected against the specific risks that affect buy to let, such as malicious damage, which unfortunately is on the rise.

What other factors are causing property insurance premiums to rise?

Rising inflation and market factors such as the costs of materials and labour are not the only things having an impact on insurance premiums. Insurers are seeing an increase in both the frequency and cost of claims across all types of cover, due to a number of additional factors. Most notable is the impact of climate change.

Climate change is leading to more frequent severe weather events across the UK, such as named storms and flooding. In 2020, the year that brought the pandemic, storms Dennis and Ciara alone resulted in an estimated cost of over £500 million to insurers. That year, we experienced a 95 per cent increase in storm claims compared to the previous year.

Insurers haven’t even factored in some of the worst surface flooding that we have ever experienced in 2021. The true cost will take time to come through, but this could easily match if not surpass the storms of 2020. This increase in severe weather is a key reason for the rise in premiums, as well as reductions in coverage such as flood exclusions.

Claims from plumbing leaks and frozen pipes have also increased in recent years, and these account for one in three of Hamilton Fraser’s claims. The damage caused by something like a burst pipe can be devastating – insurers in the UK pay out £1.8 million for this type of claim every single day.

Changing methods of construction and design are also a factor. Modern buildings are often less able to withstand fires, floods and storms and the trend for open-plan buildings has made it harder to contain fires once they take hold. The costs of settling personal injury claims has also risen, and in our increasingly litigious society, there is always the risk of false claims being made. If a tenant or a visitor has an accident that causes a life changing injury, the landlord could be liable for medical expenses and loss of income for the rest of the victim’s life, which can run into millions of pounds.

What can landlords and tenants do to minimise risks associated with rising insurance costs?

Landlords can’t do much to influence the level of inflation or the rise in extreme weather events. But fortunately, there are some steps you can take to minimise the impact of the rise in insurance premiums.

1. Carry out risk mitigation measures

Do all you can to make sure the property is safe, such as carrying out regular maintenance, signing up for flood alerts, making regular inspections and taking precautions when the property is unoccupied.

• Start your renewal process early

In the current climate, there are likely to be fewer quote options, so don’t leave it until the last minute to renew your insurance, or you may find your provider is no longer offering a policy which meets your needs.

• Make sure you’re not underinsured

Alarmingly, the average degree of underinsurance is 40 per cent. Underinsurance is a serious risk to property owners and can even result in an insurer turning a claim down. In the current market, insurers are more likely to refuse claims or pay out less than the amount being claimed for. It is therefore very important not to reduce your rebuild value, particularly with the increase in the costs of materials and labour. It’s a good idea to get a professional valuation so that insurers have confidence that they are charging the correct premium for the risk being covered.

• Provide detailed information and stick to the conditions of your policy

As interpretations are likely to become stricter, don’t give your insurer any reason to deny your claim. Provide as much detail about your property as possible, for example alarm and lock specifications. This will enable underwriters to apply discounts where they are able to, rather than assuming a worst case scenario. In the event of a claim, make sure you follow the claims process properly and contact your insurer immediately after an event to improve your claim chances.

• Check your standard excess

Consider increasing your excess as this will reduce your premiums without affecting your level of cover. This might be a sensible option if you rarely make claims.

The residential and commercial property markets have been steadily ‘hardening’ even before COVID-19 and the subsequent rise in inflation. Increases in premiums and excesses have been seen every quarter since the end of 2018, and this has been coupled with an increasingly risk averse approach and more stringent terms from insurers. You can read more about that in Hamilton Fraser’s article, Six risks in a hardening insurance market and how to avoid them. The key thing for landlords to understand is that it is crucial to check your insurance cover properly to make sure you’re fully protected and not to be tempted to reduce coverage. This is not the time to cut corners when it comes to cover if you want to avoid the pitfalls of property underinsurance.

If you have questions about the rise in insurance premiums, or would like to discuss landlord insurance with one of our experts, feel free to contact the Hamilton Fraser Total Landlord Insurance team. 

Call Total Landlord Insurance today on 0800 63 43 880 quoting code LZ2022 or get a quote online in under 4 minutes.

You can also visit our Knowledge Centre, where you will find a library of content packed with useful advice for landlords to help you minimise your risks and make a success of your business.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Landlord insurance premiums driven up by inflation | LandlordZONE.

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Property Partnership 2% Stamp surcharge as Overseas buyer?

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Hello all, To explain my situation, I am a UK citizen, but currently living in Hong Kong.

I already have a number of properties in my own name (bought before I left the UK) and am now looking to establish a company with my cousin

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SCOTS: ‘Our landlord register hasn’t worked – so be careful as you plan yours, Mr Gove’

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Scotland’s landlord leader says the “postcode lottery” over how its country’s register is administered means it has failed to weed out bad practices or use the opportunity to communicate with private landlords.

Scottish Association of Landlords chief executive John Blackwood (pictured) is encouraging housing secretary Michael Gove to think carefully about how he can properly achieve the aims of its proposed national register for England – announced today in the government’s levelling up White Paper.

Private landlords in Scotland are legally required to apply for registration with their local authority and get a registration number to show they’ve been approved – which is renewed every three years.

Council control

Its landlord registration scheme delegates maintaining the register to 32 local authorities, which isn’t an ideal situation, says Blackwood, as many landlords own properties in different authorities which means they have to pay multiple registration fees.

More importantly, Blackwood tells LandlordZONE that because of the postcode lottery used to administer the scheme, it isn’t always weeding out bad practice.

You don’t know how many rogue landlords aren’t registering, while there are only a small number who are refused registration,” he says.

“When it was set up, we hoped that the register would be a way for local authorities to communicate with landlords and keep them updated with information about their rights and responsibilities.

Missed opportunity

“But some authorities simply use it to keep a list of landlords which is a missed opportunity. A national register would have an advantage and should be easier to maintain.”

However, one clear benefit is the ability for the public to search the register to find out how to contact the owner of a let property.

Blackwood adds: “The UK government needs to carefully consider what the purpose of the register is and how its effectiveness will be monitored as there is no point it just creating a register of names and addresses for the sake of it.”

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – SCOTS: ‘Our landlord register hasn’t worked – so be careful as you plan yours, Mr Gove’ | LandlordZONE.

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Lenders keen to cater for First Time Landlords

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The choice of buy-to-let deals available to first-time landlords (FTL) has grown at a time when demand is rife for rental properties, according to the most recent research by Moneyfacts.co.uk.

As product availability has recovered in the wider buy-to-let (BTL) sector following the impact of the pandemic

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Existing Decent Homes Standard is not the right vehicle

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Responding to proposals in the Government’s ‘Levelling Up’ White Paper that private rented homes will be required to meet the Decent Homes Standard, Ben Beadle, Chief Executive of the National Residential Landlords Association said:

“Every tenant should have the right to expect properties to be safe and secure.

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Levelling Up White Paper – S21 abolished – Landlord register – Decent homes standard

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Section 21 ‘no fault’ evictions will further be abolished, ending the unfair situation where renters can be kicked out of their homes for no reason.

We will consult on introducing a landlords register, and will set out plans for a crackdown on rogue landlords –

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BREAKING: Levelling up White Paper confirms ‘crack down’ on landlords

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Housing secretary Michael Gove has confirmed a raft of renting reform proposals within the government’s levelling up White Paper, although today’s announcement remains thin on detail.

But what it lacks in depth it makes up for with ambition; the document includes dozens of radical proposals including a heavy focus on landlords.

As expected, there is to be a national landlord register, a crack-down on rogue landlords, the implementation of a national ‘decent homes standard’ and moves to abolish section 21 ‘no fault’ evictions.

Other measures that were within the renting reform consultation such as the lifetime deposit scheme, are not included.

Local pride

Gove clearly wants the private rented sector to be part of the government’s efforts to level up the UK economically and in relation to opportunity, health, education, policing and devolved decision making and government spending to conclude 12 key ‘missions’ by 2030.

The government also wants to get more renters on the property ladder; and the government’s ambition is for the number of non-decent rented homes to have fallen by 50%, with the biggest improvements in the lowest-performing areas.

“Not everyone shares equally in the UK’s success,” says Gove (pictured).

“For decades, too many communities have been overlooked and undervalued.

“As some areas have flourished, others have been left in a cycle of decline. The UK has been like a jet firing on only one engine.

“Levelling up and this White Paper is about ending this historic injustice and calling time on the postcode lottery.”

Reactions from landlords

Ben Beadle (pictured), Chief Executive of the National Residential Landlords Association says: “Every tenant should have the right to expect properties to be safe and secure.

“The existing Decent Homes Standard however is not the right vehicle with which to achieve this important goal.

“At present, this standard, designed for the social rented sector, does not reflect many of the differences between it and the private rented sector. This includes the types and age of properties in each.

“We will work with the Government to ensure whatever standards expected of the sector are proportionate, fit for purpose and can be properly enforced. Without this, criminal landlords will continue to undermine the reputation of the vast majority of responsible landlords doing the right thing.”

“The White Paper has also re-announced plans to end Section 21 repossessions, consult on a national register of landlords and develop plans to better tackle rogue landlords.”

Shelter commentary

Osama Bhutta, its Director of Campaigns (pictured) says: “Today’s commitment from government is a crucial step forward and offers hope to the millions of people being held back by the housing emergency.

“You cannot level up the country without safe and secure homes. The devil will be in the detail, so the government now needs to set out how it will deliver on its promises.

“Renters have had a rotten deal for years. Far too many have been forced to live in shoddy conditions, afraid to complain for fear of eviction.”

Read the White Paper in full.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – BREAKING: Levelling up White Paper confirms ‘crack down’ on landlords | LandlordZONE.

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Contract or deposit first?

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For those of you that manage your own properties (without using an agency etc), what is your sequence of events when you have a person(s) interested in taking a room or a property?

I ask this because I am having an abnormal amount of people saying that want to take a property and asking for a tenancy contract

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Evictions have a new look – at Landlord Action

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Leading evictions specialist Landlord Action has a new look after the company’s redesigned logo and website went live today.

Paul Shamplina, who is currently busy filming a special report on evictions with ITV, says the ‘powerful and bold’ branding signifies the strength of the company and goes hand in hand with the more complex legal cases that will be undertaken by the team.

Founded in 1999 as the UK’s first fixed-fee evictions specialist for private and corporate landlords and now employing over 200 legal professionals, it joined the Hamilton Fraser family in 2017.

This enabled the group to offer an end-to-end lifecycle service to landlords, covering everything from insuring their property and protecting the deposit, to protecting against poor service by their letting agent and helping landlords get their property back in the event of non-payment of rent or other tenancy issues.

Tumultous

The past two years have been tumultuous for landlords, with eviction suspensions and extended notice periods.

Since the ban on bailiff enforced evictions ended, the number of renters being evicted has increased and Landlord Action predicts that in 2022 possession figures will double when compared to 2020 and 2021.

“Supporting landlords in stressful times is what we do,” says Paul Shamplina, founder and also Chief Commercial Officer at Hamilton Fraser (main picture).

“Our business has evolved, and our team has grown to deal with the effects of the pandemic and changes in the market.

“We will continue to manage the rise in possessions, whilst also broadening our focus to encompass the more complex legal issues facing landlords in today’s market, given the shift of power in the tenant’s favour.

“Going forward, our services will become more and more important to landlords as the economy gradually unlocks following a tough winter.”

Paul Sowerbutts (pictured), who joined the company as Head of Legal last year, says: “This fantastic rebrand is the next step in Landlord Action’s move towards offering a one-stop shop for all of a landlord’s legal services.”

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Evictions have a new look – at Landlord Action | LandlordZONE.

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January house price inflation at 11.2%

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The latest January Nationwide House price index is reporting the strongest start to a year since 2005 with inflation running at 11.2% up from 10.4% in December with January prices up 0.8% month-on-month.

The average price of a home in the Uk now stands at £255,556

Robert Gardner

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