Life Insurance For Landlords

WHY LIFE INSURANCE FOR LANDLORDS IS CRUICAL

Landlord Life insurance could provide financial security and peace of mind for your loved ones

Your home may be repossessed if you do not keep up repayments on your mortgage.
The Financial Conduct Authority do not regulate buy to let mortgages.

Landlord Life Insurance

A number of lenders and banks were asked the following question and a summary of their replies are shown below*

It has become a very popular misconception that if a property (or properties) is / are held in the sole name only of the deceased landlord that, at the time of the borrower’s death, the buy-to-let mortgage lender will simply allow a new ‘name’ (i.e. a beneficiary of the deceased’s Will – assuming they have written one!) to receive the property as a legacy and take over the mortgage without issue.

Wrong! This is not what happens.

 

*Source HD Consultants Life insurance for landlords – https://www.hdconsultants.net/_webedit/uploaded-files/All%20Files/documents/Life%20Insurance%20for%20Landlords.pdf 

In the event of the death of the borrower / landlord, do you ask for the buy-to-let mortgage to be redeemed?   

 

Saffron Building Society*

“In the case of the death of a sole borrower, then we are normally contacted by the executors who are dealing with Probate and the estate. In these circumstances, provided the mortgage payments continue to be met, we would normally allow a grace period of up to 12 months in order for the beneficiaries of the property to decide what they are doing with the property.

If the beneficiaries require to keep the mortgage then this would have to be treated as a “new” mortgage and they would need to apply for a new mortgage facility and meet our normal

buy-to-let criteria – ie clear credit history, minimum incomes of £25,000, rental cover should be a minimum of 125% of the mortgage payment etc.”

 

 

The Mortgage works*

“I think it’s fair to say that whilst we would expect a sole mortgage to be redeemed; there would usually be a grace period permitted to allow for the estate to deal with matters.”

 

Principality Building Society*

“In the event of a death of a borrower/landlord if the buy-to-let mortgage was in a sole name we would ask for this mortgage to be redeemed in full. If there is more than one borrower on the mortgage the mortgage would still continue in the normal way – if taken out as Tenants in common the person who is deceased would remain on the mortgage as PR and all correspondence sent as such. If joint tenancy the deceased’s name would be removed.

The tenant cannot continue to pay rent if the landlord dies and it is in sole name. The mortgage would have to be redeemed either by sale or by funds from the Personal representative or Estate. The beneficiaries would have to sell the property if they do not have the funds to redeem mortgage or the only way they can take over the mortgage is to borrow money themselves to redeem the account.

As long as we know the property is on market for sale and we have details of the Estate Agent and the selling price , we do give them time to sell property. However, we will send reminders if they do not keep us up dated. Usually 6 months. If sole name we also require a Grant of Probate which names the Executor of the Estate, this is the only person we can give information on the mortgage (unless a Solicitor is involved). The Executor would then need to sign a letter stating we can speak to the Estate Agents acting for the sale.”

*Source HD Consultants Life insurance for landlords https://www.hdconsultants.net/_webedit/uploaded-files/All%20Files/documents/Life%20Insurance%20for%20Landlords.pdf

One way or another, the lenders simply want their money back!!

They will all provide a short term sympathetic view, but they are of course in the business of ‘risk lending’ and they are not there as the family friend. But where does that leave the family which is left behind?

 Whereas the ‘grace period’ seems to range from 2 – 12 months to allow the Executors or Administrators to attend to probate matters and close the estate down, this period will ultimately have a finite time limit on it and the buy-to-let lender, who of course is a creditor, simply wants their funds redeemed one way or another.

 So what if the widow(er), children or any other intended beneficiary wanted to take over the property(ies) from the deceased owner? As the lenders have said, the potential new owner would need to have a buy-to-let mortgage in place and this “would have to be treated as a “new” mortgage, they would need to apply for a new mortgage facility and meet normal buy-to-let criteria”.

If there were joint borrowers and one dies, all the lenders tended to agree that the property automatically transfers to the other party and the mortgage continues as was.

 There is also worry over the possibility that if cash funds from the deceased’s estate are not available (or sufficient) to fully repay the buy-to-let mortgage(s) – and if the intended beneficiaries cannot raise a buy-to-let mortgage in their own name(s) – that these valuable income producing, wealth creating assets will simply be repossessed, possibly sold quickly at not necessarily their full value, tax bills applied and ultimately therefore the legacy will be seriously diminished.

 This is probably not quite what the original landlord / property owner wanted to happen!

So what are the possible, positive solutions for existing sole named buy-to-let borrowers?

There are still a few strategies which could be implemented that could ensure an efficient, swift and stress-free transfer of ownership of a sole-owner property (or property portfolio) in the event of premature death during the mortgage term.

 It is important to note that the relevant solution would need to be tailored to suit the specific property, owner’s personal, financial, family and tax situations, so a simple ‘one size fits all’ answer here would not be appropriate. 

One of the easiest, quickest and best value solutions is however a properly drafted life assurance contract, which is flexible, tax efficient and written so as to help the intended beneficiaries receive the property(ies) speedily and with the minimum of fuss.

In summary, if you own one or more (buy-to-let mortgaged) properties in your sole name and you wish to leave these properties (and of course the rental income, as well as any future capital growth) to your spouse, children, heirs and / or other beneficiaries, do not assume that this will ‘just happen’.

Speak to us to find out how we can help you with Landlord Life Insurance