Is letting out a flat right for me?

Before renting out a flat, it can help if you understand the type of property you own. Freehold and leasehold are two types of property ownership. This can dictate the type of insurance you choose. 

Freehold means you own the building and the land it’s on. 

Leasehold means you own the property for an agreed number of years (the lease), but you don’t own the land it’s on. When the lease expires, ownership returns to the freeholder unless you extend the lease. 

Most houses in the UK are freehold. Most flats in the UK are leasehold. 

If you own a flat in a building block, the land it’s on is typically owned by the property’s freeholder. The freeholder is usually responsible for insuring the block of flats and any communal areas, such as stairwells. Leaseholders cover these costs through their service charge. Other charges might include repair and maintenance for the building’s structure and communal areas, as well as ground rent and administration charges. 

Check your lease terms for full details if you’re unsure what applies to you. Some require specific insurance coverage. 

Freeholders might consider landlord buildings insurance to protect the property’s physical structure against damage. 

While leaseholders might not need buildings insurance, both freeholders and leaseholders might want contents insurance to protect the contents within their flat against loss, damage, and theft.

There can be advantages and disadvantages to letting out a flat. Below are a few examples, but keep in mind that this is not an exhaustive list. Additional pros and cons might be unique to you. 

Pros: 

• Steady monthly income – rent payments can help cover mortgage costs, property taxes, and maintenance expenses while potentially generating profit. 
• Property value growth – property values in desirable areas can increase over time, meaning potential long-term capital growth. 
• Diverse investment portfolio – property investing through letting can help diversify an investment portfolio beyond traditional stocks and bonds, potentially reducing investment risk through different types of assets. 

Cons: 

• Time commitment – managing a rental property can involve time spent finding and screening tenants, handling maintenance requests, collecting rent, and tackling paperwork. 
• Unexpected costs – repairing, replacing, and maintaining faulty appliances such as ovens and boilers can be costly, impacting rental income. 
• Problematic tenants – late or missed rent payments, property damage, noise complaints, or legal disputes with tenants can create challenges. The eviction process can be lengthy and expensive if serious issues arise and tenants refuse to leave.

Landlords insurance isn’t legally required for letting out a flat. However, many mortgage lenders demand it for buy-to-let properties, and your lease or building management company might also ask for it.

Your flat block’s buildings insurance is typically arranged by the freeholder, often covering the main structure of the building. Landlords insurance can safeguard you against potential legal disputes regarding your flat, covering your liability as a landlord. 

As well as buildings insurance, you might also want property owner’s liability, and loss of rent or alternative accommodation cover. 

Having appropriate cover can also financially protect you against losses and damages from unexpected incidents, such as water leaks, which can lead to costly repairs. Water damage can be common in flats, with added risks from neighbouring properties and elaborate sewage and drainage systems.¹ 

Landlord buildings insurance could cover the cost of repairing or replacing water-damaged fixtures and fittings. 

You can also choose from various optional extras, including contents insurance, legal protection, and emergency call-out cover, to help ensure you and your tenants are adequately covered. 

Knowing you’re protected in various scenarios can offer peace of mind, helping you manage your property confidently.