For many property owners who are fed up with losing money when their tenants fail to pay their rent, a Rent Guarantee Scheme will seem the solution to all their problems.
If you are a landlord and you are or have been experiencing problems with tenants refusing to pay their rent, a Rent Guarantee Scheme will indeed look like the solution to your problems.
However, although most Rent Guarantee Schemes are operated by genuine companies that will make sure you are aware of all the ramifications of a Rent Guarantee scheme, some unscrupulous people will not have your best interests at heart.
To help you know what a Rent Guarantee Scheme is, we have listed five things you should know before you sign up to a scheme.
Rent Guarantee is not the same as Landlord insurance
While standard landlord insurance policies may cover mortgage payments if your property is left vacant as the result of an accident such as a fire or floods, and it will cover legal costs incurred if you need to evict your tenants, it will not cover the loss of rental income if your tenants stop paying. For that cover, you will need a Rental Guarantee Scheme.
You will not be free from your legal responsibilities
Although you are not selecting your tenants, it will still be your responsibility to ensure your property fulfils all the requirements of the health and safety regulations required by law. If your property is leasehold, you will still have to pay service charges and ground rent.
The rent guarantee provider will usually cover the maintenance costs. However, agent fees and insurance premiums on the guarantee along with the maintenance costs will come from the monthly income and will be reflected in a lower playout.
You must check the quality of your tenants
You must insist your Rent Guarantee provider undertakes a thorough check on the background of the tenants he provides for you and lets you know there are no asylum seekers or multiple sublettings going on which you are not aware of.
If this did happen and your property was deemed an unlicensed house in multiple occupation (HMO), you could be liable for a substantial fine.
If your mortgage is buy-to-let, you could also be in breach of the terms and conditions covering subletting. This may result in your mortgage being cancelled and the debt called in.
You must be aware of the cost.