The pandemic and the resulting economic crisis caused an increase in non-performing loans of 7.3% last February 2021, according to data from the Delinquent Tenant File (FIM). That data was a rise of 6 percentage points compared to February 2020, just before the arrival of covid 19.
This increase in delinquency linked to the effects of the economic crisis (business bankruptcies, ERTE and rising unemployment) “has caused a 100% rise in the contracting of non-payment insurance,” according to the deputy director general of donpiso, according to 20 minutes. Emiliano Bermúdez, “precisely as a way for owners to protect themselves from eventual cases of late payment by tenants.”
The increase in non-performing loans due to the economic crisis has caused a 100% rise in the contracting of non-payment insurance
“The increase in non-performing loans is a situation that greatly worries the banks because it puts consolidated payments at risk and it already happened in a similar way in the previous economic crisis,” he says.
For this reason, according to the forecasts of the Spanish Observatory of Non-payment of Rent Insurance (OESA) this year 30% of new rental contracts will include non-payment insurance.
Currently, the rental market in Spain represents 18 percent of the total housing stock in the country, with 3.4 million properties, although in the sector they foresee an increase in supply over the next few years.
“The Covid-19 crisis has made landlords feel more insecure about possible defaults,” explains Emiliano Bermúdez, who adds: “The volatile context in which we live also makes it very difficult to foresee future delinquencies.”
What is non-payment insurance?
The non-payment of rent insurance is an insurance that provides the owners of a leased property with the assurance that they will collect the rent, according to the Rankia financial company.
What modalities exist?
There are two types of insurance for non-payment of rent. On the one hand, the basic rent non-payment insurance: the landlord receives the payment of the monthly payments if there is a non-payment by the tenant. In addition, it also offers legal defense to demand from the tenant the payment of unsatisfied amounts (court fees, attorney and attorney’s fees, notary fees, expert witnesses and bonds required in criminal proceedings).
The second modality is the so-called non-payment of rent clause within home insurance. In theory the coverage is similar, but in practice it is usually less complete and offers less coverage than the non-payment of rent insurance, they indicate from Rankia.
How do they work?
“The non-payment of rent insurance covers the rent agreed at the time of signing for up to 12 months of non-payment,” explains Emiliano Bermúdez (donpiso). In this way, the landlord insures his monthly rent and avoids delinquency situations on the part of the tenant.
Do you cover other coverages?
In addition to non-payment, these insurances offer other coverage. “Once an insurance has been contracted,” explains Bermúdez, “it is common to add protections for theft or damage to the home, which in turn are the main cause of litigation between the landlord and the tenant,” he adds.
What price do they have?
The price of insurance for non-payment of rent, as explained by acierto.com, is between 3% and 5% of annual income. This means that, in the case of a rent of 1,000 euros per month, it implies a cost of between 360 and 600 euros per year. However, these figures must be taken as a guide since they vary for each company.
Who should pay for it?
The law does not clarify this aspect, which means that both parties (landlord and tenant) can freely decide on this aspect. Therefore, both the lessor and the tenant could make such payment indistinctly.
However, it must be borne in mind that the beneficiary will always be the landlord, since this is the one who needs to be covered against any possible non-payment that may occur by the tenant. That is to say: it is recommended that the insurance be contracted by the owner of the home. When insuring the tenant -possible cause of the damage- this should not be the one who underwrites it.
Bermúdez, however, warns that in Catalonia there could be problems since the law imposes price caps in stressed markets.
Does it benefit the tenant?
For the deputy director of donpiso, hiring insurance also has benefits for the tenant, by serving as financial relief in case of not being able to meet the rent payments. “With a comprehensive coverage, the tenant avoids possible unpleasant situations such as entering the list of defaulters or being evicted,” he says.
When is it considered default?
After one month from the agreed payment date, it is considered unpaid and a claim can be made. The tenant must be formally notified of the debt. The owner must also inform his insurer.
The solvency study is a check that the future tenant has the necessary requirements to be able to face the payment of the house. Specifically, your employment contract and latest payroll, self-employment statements and it is checked if you are on delinquent lists.