As a landlord, the worry that a tenant can’t pay their rent can weigh heavily on your shoulders. That’s where a rent guarantor or a rent guarantee insurance policy comes in.
Both give you greater financial security, but each works in its own way. Understanding their differences is crucial for your business, especially as the Renters’ Rights Bill brings new rules to the private rental sector.
Basic definitions
A rent guarantor is a person or a professional service that acts as backup if your tenant can’t afford their rent. This can be a family member or friend of the tenant. Alternatively, the tenant can pay for a third party to act as their guarantor.
On the other hand, a rental guarantee is an insurance policy purchased by the landlord to lower the financial risk of a tenant not paying their rent.
Rent guarantors: the who and how
A landlord doesn’t always need to ask their tenants for a guarantor, but doing so can help calm their anxieties when renting to students, first-time renters, people with a low income, or people with a poor credit history. The guarantor agrees to pay the rent if the tenant can’t.
Who can be a guarantor?
Often, a rent guarantor will be a tenant’s family member or friend. They must be an adult, a wage earner and – most likely – a homeowner. In short, they need to have the income to cover the rent and a decent credit history (they must be thoroughly referenced, just like a tenant).
But if the tenant doesn’t have someone suitable, they can pay for a commercial third party.
How do commercial rent guarantor services work?
The tenant pays a fee, either in instalments or as a lump sum. The rent guarantor service then agrees to cover the unpaid rent, assuring the landlord they won’t be out of pocket.
For the tenant, this lets them avoid awkward conversations with their parents or other family members – after all, calling for their financial backup can feel like a big ask. As for the landlord, they know their rental income is guaranteed in a more straightforward commercial arrangement than relying on, say, the tenant’s mum or dad. However, keep in mind that the tenant must still pay back any missed rent to the commercial rent guarantor service.
Winkworth partners with RentGuarantor, who help secure rental income and cover legal costs of up to £10,000 for rent recovery.
Rent guarantee insurance: the how and why
While landlords are not legally required to take out this insurance, also known as rent protection insurance, it can be a wise move if you’re looking for added financial protection.
How does rent guarantee insurance work?
Landlords pay the monthly fee in exchange for the insurance company agreeing to pay a certain amount of unpaid rent and help to resolve tenancy disputes that require possession. Each insurance policy is different, but most will cover up to 12 months of missed rent and other costs.
Winkworth partners with HomeLet – the UK’s largest tenant referencing and specialist lettings insurance company.
Why take out rent guarantee insurance?
If your tenant uses a friend or family member as a rent guarantor, you might opt for insurance to give you more reliable, formal coverage. You’re the one to arrange this and deal directly with the insurance company, making for a potentially faster way to cover any gaps in your rental income.
Note: your tenant will have to go through certain checks and provide references for you to get this insurance.
The impact of the Renters’ Rights Bill
Expected to come into effect in early 2026, this bill will tighten the rules around how landlords can operate. For example, landlords will only be allowed to charge rent in advance in certain situations. They will likely deal with more financial risk and, therefore, may want to ask their tenants for rent guarantors, take out rent guarantee insurance, or do both. Speak to your local Winkworth office for more advice and information on what’s right for you.
