What are housing associations?
Housing associations provide housing for approximately 6 million people in England. This can include social housing and shared ownership homes, as well as necessary supported and specialist housing. Housing associations are typically private, non-profit organisations that provide affordable housing and support local communities; they do not make profits for shareholders and instead, invest all of their earnings in building new homes.
Why do housing associations pose a challenge to real estate insurers?
Housing associations provide similar accommodation to that of local authorities, which is essentially more affordable housing to tenants who may require additional financial assistance. Whilst occupants can be full-time working professionals, many tenants placed by housing associations are experiencing, or have recently suffered, challenging life and socio-economic situations such as homelessness and physical and/or mental health issues. Many may also be ex-offenders or vulnerable people.
There are several reasons why insurers may feel that this nature of tenure poses a higher risk for loss, for a variety of reasons, including:
The occupants may be financially vulnerable, which could lead to a lack of care to the home, resulting in potentially higher costs of any damage.
Rent arrears and anti-social behaviour may cause the property to be vacant between tenants and/or for extended periods of time.
A housing association may be obligated to house an occupant who requires emergency housing from the local authority; the provision of which, may result in a lack of tenant vetting/regulated checks on the occupant.
Concerns about the lack of landlord control, over the nature of tenants that could be homed throughout the year.
Some locations may require live-in guardians for tenants who have special needs and/or require assistance, which can increase the risk of liability and/or damage.
In contrast to a standard Private Assured Shorthold Tenancy Agreement, the occupant may be under no obligation to maintain the property as if it were their own, potentially resulting in long-term damage and higher-value claims.
How do the risks influence insurer appetite?
Whilst the insurance market is seeing signs of a transition from the ‘hard-market’ conditions of the last few years, the capacity within the real estate space remains limited. This has resulted in premium increases, reductions in the levels of coverage available and more stringent underwriting criteria.
Insurers will tend to avoid underwriting any risks that may incur a higher-risk exposure. These include those risks where insurers have seen cyclical claim occurrences in the past, and those locations where insurers may face the greatest threat of loss. Housing association risks certainly tend to fall into these categories.
With the above in mind, it should be no surprise that a higher proportion of real estate insurers have exited the housing association space altogether. This has exacerbated the issue of lack of capacity, which has paradoxically come at a time when housing association-owned and tenanted homes are becoming increasingly popular for landlords in the UK due, in part, to the passive income and less onerous maintenance responsibilities arising from them
How can Lockton help if you are a housing association or let your home to one?
Our specialist Global Construction and Real Estate (GREAC) practice keeps completely up to date with the latest property market trends, constantly working with a wide range of insurers to provide innovative solutions and coverage for our clients.
With many insurers exiting this space, Lockton has recently formed a new relationship with a London-based insurer who has the appetite to underwrite this type of tenure at competitive levels.
Story of Success
Lockton recently received a referral for a client, whose existing insurer no longer had capacity or appetite to cover their portfolio of housing association lettings. This left the client without renewal terms. Lockton was successful in securing terms for the client.
Under our bespoke ASSET II policy wording, Lockton can also facilitate terms for housing association lettings.
If you have, or are thinking about letting your property to a housing association, or if you have any general questions, please contact a member of our Real Estate team (opens a new window).