Rent Guarantor or Rent Guarantee Insurance: which is the better option for landlords?

As landlords navigate the complex landscape of property management, ensuring a steady rental income remains a top priority.

Yet, with the inherent risks of tenant defaults and financial uncertainties governed by the cost of living crisis, landlords often find themselves contemplating the best strategies to protect their investments. 

Two prominent options emerge: Rent Guarantors and Rent Guarantee Insurance for Landlords. But which avenue offers the superior solution for landlords seeking financial security and peace of mind? 

Here, we explore the intricacies of both Rent Guarantors and Rent Guarantee Insurance, examining their benefits, drawbacks and considerations to help you make informed decisions based on your unique circumstances.

Rent Guarantors are individuals who agree to assume financial responsibility for a tenant's rent payments in the event of default. Many of whom are family members or close associates of the tenant, providing a personal guarantee of payment.

One significant advantage of a Rent Guarantor is the potential for a stronger incentive for tenants to fulfil their rental obligations, knowing that their trusted individual is vouching for them.

Also, Rent Guarantors typically don’t involve additional costs beyond the agreement between the landlord and the Guarantor.

However, relying on a Rent Guarantor comes with its own set of considerations. Landlords must thoroughly vet the financial stability and creditworthiness of the Guarantor to ensure they can fulfil their obligations if necessary. 

Moreover, stipulating the requirement of a Rent Guarantor may limit the pool of potential tenants available to you, as not all renters will have access to someone willing or able to serve as a Guarantor.

On the other hand, Rent Guarantee Insurance offers landlords a financial safety net by providing coverage for rental income lost due to tenant defaults, as well as support with legal costs and vacant possession. 

Unlike Guarantors, Rent Guarantee Insurance involves a contractual agreement with an insurance provider, typically requiring payment of a premium based on factors such as rental income, property location and tenant risk profile.

Different Rent Guarantee providers may offer different levels of cover, always make sure you check exactly what is covered when purchasing Rent Guarantee Insurance.

Here's what Rent Guarantee from HomeLet covers:

Missed rental payments

Rent is paid in full for up to 12 months, or until vacant possession is obtained - whichever happens soonest. 

Vacant possession

Once you've gained possession of the property from the tenant, you'll still be covered for 75% of the rent for up to three months (or until the property is re-let). 

Professional and claim costs

We include cover for eviction costs as standard! This means that if your tenant breaches their tenancy agreement and you need to regain possession, up to £50,000 (in aggregate with rent payments) is covered.

Expert support

Our experienced, in-house team manage the eviction of tenants in England and Wales. Across Scotland and Wales, we use a panel of solicitors.

One of the primary benefits of Rent Guarantee Insurance is its broader coverage, protecting landlords against a range of tenant-related risks beyond just non-payment of rent, such as legal expenses. 

Rent Guarantee Insurance for Landlords can also provide you with a certain amount of peace of mind, knowing that you have a reliable source of income that is guaranteed – even in challenging circumstances.

As with any insurance policy, it’s important to carefully review the terms and conditions of your Rent Guarantee Insurance policy, including coverage limits, exclusions and claim procedures. 

Furthermore, the cost of Rent Guarantee Insurance for Landlords can vary significantly depending on various factors. Be sure to assess the cost-benefit ratio to determine if it aligns with your financial goals.

In the quest to safeguard rental investments, landlords must weigh up the benefits, drawbacks and considerations of both Rent Guarantors and Rent Guarantee Insurance. 

While Rent Guarantors offer a personal touch and potential cost savings, they do come with limitations and risks.

Conversely, Rent Guarantee Insurance for Landlords provides comprehensive coverage and some degree of peace of mind. Of course, there is no denying that it also entails some additional costs and policy considerations. 

Ultimately, the best choice for you depends on a range of factors, including your risk tolerance, financial situation and specific rental property dynamics. 

By carefully evaluating these factors and understanding the intricacies of each option, you can make informed decisions tailored to your unique circumstances, ensuring greater security and stability in your rental ventures.

If your tenants can’t provide a Guarantor or that option simply doesn’t appeal, HomeLet offers Rent Guarantee Insurance for Landlords that is backed by more than 30 years of leading industry experience. 

Our Rent Guarantee policies provide a wealth of benefits for landlords, including full rent payments for six months or up to vacant possession, cover for 75% of the rent for up to three months after vacant possession, up to £50,000 to cover eviction costs, and the expert support of our in-house Claims team (in England and Wales).

Rent Guarantee Insurance from HomeLet can help you to safeguard your rental income in these financially uncertain times, providing essential cover should anything go wrong during a tenancy agreement.

To find out more about Rent Guarantee Insurance for Landlords from HomeLet or to purchase a policy, please contact us on 0800 035 8258 or request a callback to discuss your needs at your convenience.

What checks should be done on a guarantor?

With a HomeLet reference, if a tenant requires a guarantor, we carry out the same checks on them - this includes checking their employment references and a credit check. When someone is acting as a guarantor, it's important for them to have the sufficient finances in place to be able to cover the full rent should they need to, therefore it's crucial to complete thorough checks on a guarantor for the property. 

Can a landlord refuse a guarantor?

The decision of whether to accept a guarantor or not is ultimately up to the landlord. You can use information from your letting agent and the referencing checks to help you decide whether to accept a guarantor.

Is it worth getting rent guarantee insurance?

No landlord rents out a property to someone they expect won't be able to pay the rent, but even the most reliable tenants can have financial difficulties out of their control. 

In the UK, around 10% of tenants are in rent arrears, and with the upcoming changes in the Renters' Rights Bill set to make the eviction process much more challenging, Rent Guarantee Insurance can act as an important safety net, should you ever run into issues with your tenants.

Who qualifies as a rent guarantor?

Anyone can act as a guarantor as long as they pass all of the relevant checks and are happy to take on the responsibility. Guarantors will usually be family members or close friends of the tenants.