Rent Guarantee Schemes

Anon2017

I may have to consider renting out my house. My partner and I are separating and suspect we will have problems selling our house (its new build and we can't afford to reduce price).

We're not in a position to rent it out in the traditional way as we have no means of paying the mortgage if we have no tenants, or if we have tenants who don't pay their rent.

Has anyone any advice on looking at the rental guarantee schemes? An agent called Northwood appear to do this and sounds ideal for us but I feel there must be a catch somewhere!

Cakeguts

https://forums.moneysavingexpert.com/discussion/769233 There may be others if you search.

Anon2017

Oh good god, thank god I posted this!!! thanks, will be avoiding them then.

G_M

As you say, you get a guaranteed monthly income.

You lose control. You'll have a commercial tenancy with the agent (not an AST). You'll have no access or control over repairs, no say over what tenants go in, limited come-back if the tenants are a destructive.

At the end of the lease (assuming the tenants leave - you can't evict them) if the property is damaged you'll have a protracted legal battle with the agent (you'll have no useful tenant deposit).

So: balance the guaranteed income flow against the downsides.

Oh! And check both your mortgage lender and insurer: you will, of course need a BTL mortgage (or CTL), and landlords insurance, but many lenders and insurers will insist you have an AST in place. As said above, your contract with the agent will not be an AST.

saajan_12

I can't offer any personal experience, but a bit of a summary to help you weigh up the pros and cons. As far as I know there's two main ways of rent guarantee scheme: (1) you rent commercially to a company who sublet to a tenant on an AST; or (2) Rent insurance for voids / non paying tenants. Don’t look at the number of pros and cons, as some are more granular than other; work out what is important to you.

(1) Commercial tenancy to company who sublet on AST:
PRO: Relatively automatic rent payments each month, less likely to have to chase / claim.
CON: Significantly lower rent than market value
CON: You have a commercial tenancy, subject to the written terms, with few statutory rules about eviction etc. Little flexibility if its not working out.
CON: You have no choice over tenants. The company are unlikely to care about your property long term, and will want to get someone (anyone) in paying rent.
CON: Question who handles and pays for maintenance and damages. Is it tenant damage to be deducted from deposit / maintenance the company cover or big repairs for the property owner. Will the company try to shift blame? Do they pay you a deposit? If they carry out repairs, what standard? Will they inspect property and report damages to you before they escalate?
CON: Question who covers other costs during voids e.g. council tax, gas/elec standing charges..


(2) Rent insurance for voids / non paying tenants:
PRO: You choose tenants and have direct AST relationship, so can choose to evict etc
PRO: Full market rent, minus cost of insurance.
PRO: If you choose to terminate the guarantee, at worst you may have to pay for premiums for the fixed term, but you are in control of property.
PRO: You carry out repairs, inspections, deposit etc to the standard you chose
CON: More hassle of arranging repairs, inspections, deposit for YOUR tenant.
CON: You have to claim for each void / tenant failure to pay. The company may require you to jump through specific hoops or find loopholes to not have to cover for various situations. Also this may have a time lag behind expected rent payments, so may not help with cashflow.
CON: You still have other costs during voids e.g. council tax, gas/elec standing charges..

gld73

Regarding Northwood, you're better trying to get local feedback on the branch you'd use, rather than relying on a national website giving blanket opinions. I know someone who rents out 2 flats through the guaranteed rent scheme (Northwood Lettings branch in Edinburgh) and is happy with it - yes, they get a lower rent than they might get doing it themselves, but they get the monthly rent without fail. It seems to be a franchised company, so the professionalism of different branches will vary (as indicated in the linked thread above).

If Northwood had had an office in the town I was renting out my house, I'd have gone for their guaranteed rent scheme - would have saved me the hassle of changing tenants and chasing rent etc. Different people have different priorities, so of course it won't suit some people though.