It’s not nice to say, but between high inflation and rising interest rates, making ends meet is becoming an ever-burgeoning problem for many households.
According to the Australian Bureau of Statistics, the Consumer Price Index sat at 7.4 per cent in January and, while this represents a fall on the previous month, it’s still higher than economic experts would like.
Behind the headline figures is the stark reality that the cost of goods and services are rising, with people feeling the financial pinch in everything from food to petrol and, of course, utilities with electricity and gas prices spiking.
Let’s not forget rents, which rose four per cent in the December quarter alone.
Inflation is much higher than the RBA would like – and they’ve been lifting the official cash rate to try to curb it.
The result has been nine consecutive rate rises since May 2022 – lifting the rate from 0.1 per cent to 3.35 per cent (February 2023).
For mortgage holders, the rate hikes have added roughly $12,000 a year in repayments on a $500,000 mortgage.
Now, I’m sure you don’t need me to tell you the cost of living is skyrocketing and that many people are under incredible financial pressure.
So why am I talking about it?
Because when money is tight, landlords and tenants can find themselves making decisions that have insurance implications.
When it comes to landlords, they may be looking at ways to reduce costs associated with their investment property, especially if the rent they’re charging isn’t covering the extra mortgage repayments and the increased property costs (rates, water, strata fees, lawn mowing and more).
To rein in expenses, landlords may decide to put off repairs and maintenance.
There can be legal consequences if they don’t take care of urgent or emergency repairs within legislated timeframes – and there are implications for their landlord insurance too.
There’s a clause in practically all building policies that relates to adequately maintaining the premises.
If the landlord fails to keep up with the upkeep, they can risk voiding their cover or having any claim reduced or denied.
Property managers should not only notify landlords of all requests for repairs and maintenance but be sure to document the notifications.
If agents fail to notify the owners of issues, they could find themselves held liable (which is just one of the reasons professional indemnity insurance is a must).
Another landlord cost-cutting measure may be to end property management contracts.
This is bad news for agencies but also impacts landlord insurance.
Many landlord insurance providers only offer cover if the property is professionally managed.
Deciding to self-manage could result in the landlord voiding their policy and potentially not being able to take out specialist landlord cover at all.
Then again, landlords may be thinking of dropping insurance cover all together.
If something were to happen at the rental, this could prove to be costly, even financially devastating.
It’s a false economy.
Cancelling a policy would not only leave the landlord exposed, it could also have ramifications for their property manager (many agencies won’t take on uninsured clients for good reason) and their financial institution (having insurance is often mandatory if there’s a mortgage over the property).
Other landlords may consider reducing their cover by revising their sums insured to lower the premium.
Again, this could prove a false economy, particularly if the landlord needs to claim, as they could find they are woefully under-insured.
If your landlords are making rumblings about their insurance, suggest they get in touch with their provider to discuss their options.
Remember to act within your authority when it comes to giving financial advice – the best move is to refer the policyholder to their insurer.
As for tenants, rent arrears is the main issue to watch out for – and often a tough one to handle, particularly if the reason is financial hardship.
When faced with a choice between putting food on the table or paying their rent, it’s not hard to imagine why groceries often come ahead of rent.
However, missed, late and partial rent payments can quickly add up – and spiral out of control – if not kept on top of.
Your landlord clients will expect you to make sure their tenants are paying their rent in full and on-time (and, I’m sure, will let you know quick smart if the rent hasn’t hit their account by the time the mortgage payment is due!).
Agencies should have systems in place to keep watch on rent payments and diligently following the protocols and procedures can reduce the risk of rent arrears.
To avoid the ‘you never said’ argument, be crystal clear with tenants about the rent payment procedure, adopt a strict policy for rent arrears and address late and partial payments immediately.
Let your landlords know your plan for tackling arrears including the timeframes for when you will take action and be clear about the legal requirements.
Rent arrears is a common reason why landlords need to claim on their insurance.
Most policies limit the number of weeks a landlord can claim for rent default and landlords can find they are left out-of-pocket if their property manager has been tardy in their remediation actions.
There’s also a clause in insurance policies that relates to acting to limit or prevent further losses.
This doesn’t just apply to acting when the property has been damaged but also to financial matters – making addressing rent arrears a requirement of cover.
This means that a property manager’s inaction could have implications for the landlord’s insurance.
With tenants under pressure, the risk of rent arrears increases.
Aside from following agency protocols, liaison between landlord and tenant may be required.
Property managers with good relationships with tenants may find that the renter lets them know straight away if they are having financial difficulties.
The agent can then discuss what options there might be with the owne, especially if the landlord doesn’t want to lose the tenant.
Before agreeing to any leniency measures (e.g. waiving unpaid rent, reducing rent payments), it is wise for landlords to check what the implications for their insurance cover are (in general, landlords can’t claim loss of rent or the difference in rent if they’ve made such arrangements).
Financial strain may also result in tenants not notifying you of any damage they have caused or that they are unable to repair it.
Be sure to conduct regular property inspections and complete condition reports as your landlord will need these if they need to make a claim on their insurance for tenant damage.
My point is simple – but the issue can be complex.
The cost of living is rising, and your landlords and tenants may be feeling the financial pressure.
Whether owners are looking at cost-cutting or renters are struggling to meet their commitment, their actions can impact the landlord’s insurance.
As a property manager, you may need to keep an even closer eye on rent payments to avoid arrears or caution landlords to talk to their insurance provider before making any rash decisions.
At EBM RentCover, we know that these can be trying times for our agent partners and our team are here to help.
- Our advice about insurance is provided for your general information and does not take into account your individual needs. You should read the Product Disclosure Statement and Policy Wording prior to making a decision; these can be obtained from EBM. Article supplied by EBM.