A landlord’s guide to mortgages
Our Landlord’s Guide to Mortgages is designed to help you understand the different mortgage types open to buy-to-let properties – and which will maximise the potential income from your investment.
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When you take out a mortgage, most lenders will require you to simultaneously take out an insurance policy to safeguard your (and their) investment. This is normally known as Building Insurance and will ensure that you’re covered for the remainder of your mortgage amount in the case of fire or flood.
However, along with Building Insurance, there are a number of other polices which are a good idea to look into once you become a homeowner. This guide is designed to help you to understand your various insurance options so you can make an informed decision about what’s right for you.
So, whether you’re in the planning stages of buying a new property or you’re just looking for help to safeguard your current home, this insurance guide from our expert team at Mortgage Matters Direct will help you to get started.
For a little free advice that’s tailored to your own situation, be sure to get in touch with our advisors. We’ll even be able to set up your insurance policies for you so you can get on with enjoying your new home.
As its name suggests, Building Insurance is a policy which safeguards the actual bricks and mortar of your home, as well as any permanent fixtures and fittings (e.g. your bath or kitchen cabinets). So, if the worst should happen, your insurance company will pay you a sum to either help with rebuilding or fixing your property and – if needed – repaying your mortgage provider your final loan balance.
What does it include? Ultimately, Building Insurance saves you from having to shell out for damage from:
This could include your garden and any outbuildings that you have, but do check the small print beforehand since every policy is different.
Typical things Building Insurance covers:
It’s unlikely that your provider will provide remuneration for any of the following:
Bear in mind that you can easily invalidate your policy by renting out your home without seeking your insurers permission or by leaving the property vacant for longer than 30 days. So, if you’re planning on taking a long holiday or letting your home out while you’re away, check with your provider beforehand.
Do I need it? Yes. We can’t think of any mortgage provider that doesn’t insist that you take out a policy before you complete on your new home.
How much will this set you back? The cost will depend on your home and your insurance provider, but according to the AA, the national average for Building’s Insurance in 2018 was £112 per year.
Just as Building Insurance is a policy to protect the building itself, Contents Insurance covers what’s inside it – that is, your furniture and possessions.
There’s often some confusion over what is covered by Building Insurance, and what Contents Insurance is liable for. Grey areas, like what exactly do fixtures and fittings come under (more on that, later), can make for an unwelcome surprise when you come to claim. For that reason, some providers offer products which encompass the two – known as Building-Contents Insurance. Taking out both policies at once with the same provider will usually be far cheaper than arranging each separately.
What does this include? Damage from fire, flood, theft, accidental breakage and vandalism to your contents – including non-permanent fittings such as carpets – are usually covered under your policy.
Common exclusions: Accidental damage, although offered in your policy, may be limited to a single claim in your policy’s lifetime and may only be offered as an additional extra.
Similarly, personal possessions’ cover (i.e. your mobile phone or laptop) will sometimes form a part of your Contents Insurance policy – however there may be restrictions about claiming for damage or loss outside of the home. Check your small print to be sure.
Do I need it? Mortgage providers seldom insist upon Contents Insurance but it’s probably a good idea. Non-permanent fixtures and fittings, such as carpets, laminate flooring, tiles and curtains (including expensive shutters, if you have them) aren’t covered under Building Insurance alone. So, if the worst should happen, your provider won’t pay out to replace these unless you have this in place too.
A Life Insurance policy will pay out an agreed sum if you die before the end of the agreement. Mortgage Providers like you to have some form of Life Insurance in place to ensure that your next-of-kin will be able to keep up with repayments if the worst should happen.
Ultimately, there are two types of policy you can opt for:
What does it include? Sudden death by natural causes, murder, manslaughter or accident should be covered by your policy.
Common exclusions: If it has been determined that the policy-holder’s death was a result of them putting themselves at obvious risk, insurers will seldom pay out. Likewise, in the case of suicide, insurers will usually delay making any payments until after they’ve properly investigated the claim – a period of time which will span years rather than months.
Do I need it? No – but it’s a good idea, especially if dependents share your home.
No one likes to think about what will happen after we die, but it’s important to make the necessary provisions to ensure that your mortgage will be paid if the worst should happen.
As its name suggests, Critical Illness Insurance pays out a lump sum – that’s entirely tax-free – if you’re diagnosed with one of the specified life-threatening diseases on your policy. This payment will be made as soon as you’re diagnosed – and so, unlike Life Insurance, this will pay out even if you make a full recovery.
The help that this money can provide is two-fold. Not only will your mortgage be covered during your convalescence, it’ll also help towards paying for any necessary alternations to your home – such as the addition of a stair lift or downstairs facilities.
Bear in mind that if this is combined with Life Insurance, only one of these policies will pay out. So, if you received a lump sum from a Critical Illness policy following a cancer diagnosis, your next of kin wouldn’t be able to then make a claim on your Life Insurance if you pass away.
Which illnesses are covered?
One of the most surprising facts about Critical Illness Insurance is that it will pay out, even if you don’t die. So, if you survive for at least 14 days after being diagnosed, and then make a full recovery, you can still keep the money.
However, insurers usually have exclusions on any pre-existing conditions – and may not provide cover if you’ve ever suffered from a particular disease before.
Also, bear in mind that certain diseases – such as Skin Cancer – will not be covered by your policy. Check which conditions are and aren’t included before you decide whether this is for you.
Do I need it? As with Life Insurance, Critical Illness provides and extra safeguard if the worse should happen. Not only will your mortgage repayments be covered while you recover, you’ll also have a tidy, tax-free lump sum (often within the tens of thousands) to put towards your living costs while you’re unable to work.
Mortgage Protection Insurance will ensure that your mortgage repayments are repaid, even if you have no income coming in.
So, if you were to lose your job suddenly or take voluntary redundancy, Mortgage Protection would cover your home loan repayments until you’re back on your feet again. This shouldn’t be confused with Income Protection which will cover your entire salary if this were to happen.
What does it include? There are three types of Mortgage Protection you may wish to consider, including:
As the names suggest, each offers different levels of protection, which is reflected in the cost. Also, be sure to check your policy carefully for any exclusions which may apply – for instance, exactly how you come to be unemployed may be a factor.
Common exclusions: To make a claim, most insurers will need to see that you’ve been made redundant from your role, and have not left of your own volition.
Also, since insurance companies won’t want to make your mortgage repayments for longer than they have to, it stands to reason that they’ll need some assurance that you’re actively looking for work. You’ll also need to be registered as unemployed by the government.
Do I need it? This will depend on many things, including how many other incomes come into your household – does your partner work or do you rent a room? If neither of these apply, it might be a good idea to have some kind of protection in place should the worse happen.
Deciding what level of cover is appropriate for you is perhaps, a tougher call. Currently Statutory Sick Pay stands at £94.25 a week and this will only last for 28 weeks – would this be enough to cover your minimum mortgage repayment if you were off on long-term sick? Perhaps not.
For more advice about which insurance policies are right for you, get in touch.