Insurance firms are secretly urging landlords to evict lower-income tenants “as a precaution”, an openDemocracy investigation has discovered.

Our findings have sparked alarm among housing campaigners, who called the practice discriminatory and dangerous.

One email we saw from a “rent guarantee” provider urged a landlord to issue a ‘no fault’ eviction notice – a practice the government has long vowed to ban – because a tenant in a south London flat did not have three years’ worth of UK credit history after recently moving to the UK.

The tenant otherwise met ‘minimum income’ requirements and had even agreed to take out a loan to pay rent six months in advance.

Other firms have policies that state landlords must issue tenants with eviction notices before they can claim for rent arrears.

Landlord insurance policies often entail stringent referencing and affordability conditions – including requirements that tenants be in full-time employment, undergo credit checks or meet certain income thresholds – which further excludes vulnerable tenants from accessing private rented accommodation. Campaigners told openDemocracy that such practices amount to “income discrimination” amid a cost-of-renting crisis that already sees households spending more than 40% of their income on rent and forces people to bid against each other to secure tenancies.

“I think the only way to describe this system is just quite messed up,” said Rachelle Earwaker, senior economist at the Joseph Rowntree Foundation. “We don’t see this happening in any other sector where an essential service is provided.

“An energy company isn’t going to turn off your energy because there is a risk that you’re not going to be able to pay in six months’ time. When a home is your actual foundation for life, I don’t think that should be something that’s even on the table.”

Rent guarantee insurance: affordability conditions

A rent guarantee is a type of landlord insurance that covers a portion of the insured’s rental income in the event a tenant is unable to pay.

To qualify for a rent guarantee policy, a landlord must ensure tenants meet referencing and other affordability conditions set by the insurer: renters must usually provide photo ID and a proof of address, undergo credit checks, and provide references from their previous landlord and current employer, confirming they are in permanent, full-time employment.

They may also be required to show payslips and bank statements proving their monthly earnings are at least two and a half times their share of the rent.

Applicants who do not meet insurers’ conditions may be asked to provide a guarantor who does, or to pay large sums of rent in advance.

Some landlord insurance policies also include “legal expenses” protection – up to £100,000 toward the cost of eviction proceedings and tenancy disputes. Others insure a portion of a landlord’s rental income while a property remains unoccupied following an eviction, and may even require clients to evict their tenants before making claims.

While rent guarantee protection is a condition of many buy-to-let mortgages, many landlords who own their properties outright choose to insure their rental income too, Earwaker explained. Landlords may also purchase “tax investigation insurance” from companies such as Hamilton Fraser – the cosmetics industry’s “leading provider of medical malpractice insurance” – offering up to £75,000 to cover legal fees if a landlord is subject to an HMRC investigation.

Using the cost-of-living crisis to push insurance products

In 2020, the JRF’s survey of the UK private and social rented sectors found that 2.5m households were worried about how they would pay their rent in the coming three months – including 1.3m renters in the private sector. Nearly a million households said they were worried about being evicted over the same period.

Tenants from racialised communities, renters with children, and those who have lost income during the pandemic are “disproportionately struggling”, the JRF said.

A further survey by the JRF in 2022 found that eight in ten low-income private renters were “going without essentials” including food, heating and electricity so they could afford rent, Earwaker told openDemocracy. And 41% of low-income respondents said they had used high-cost credit including loan sharks, pawn shops, or doorstep and payday lenders to cover rent and energy bills.

While many tenants struggle to stay in their homes, insurance providers and industry bodies such as the National Residential Landlords Association have used the cost-of-living crisis to push landlord insurance products. “Many tenants are particularly vulnerable to rising costs,” the NRLA explains in an article highlighting a rent guarantee service offered by its “insurance partner”, Rentguard.

“Households face increasingly crippling costs” driven by inflation and “soaring energy bills”, it warns, adding: “Renters may prioritise eating and heating over rent.”

Many firms providing rent guarantee insurance also provide referencing services in-house – and raise additional revenue through selling the tenant background checks their policies require. One provider, Grow Property, charges landlords a policy set-up fee equal to three weeks’ rent, with further charges for tenant referencing and credit checks.

Another provider of landlord insurance, The Letting Partnership, describes itself as an “outsourcing partner” for estate agents. It prepares tenancy agreements and offers accounting services, such as rent and deposit collection – and claims to manage more than £30m in rent each month (up to 25,000 households, according to openDemocracy calculations using average rental values in the March 2023 HomeLet Rental Index).

The Letting Partnership reported a “surge in demand” for its “online referencing services” after the first national lockdown in July 2020, and predicted a 40% growth in business that year.

Rising affordability thresholds

Campaigners told openDemocracy that affordability conditions set by rent guarantee insurers are concerning – as they are increasingly difficult to satisfy.

Lenders and insurance firms “are aware that tenants may struggle to pay rent more than usual” due to high inflation and energy prices, and the rising cost of housing, Earwaker explained. “The risk of tenants not being able to pay is going up,” she said – meaning these companies’ “risk appetite” is changing as well.

For renters, this means higher income thresholds and more stringent referencing requirements, Earwaker continued: “That’s obviously going to have a disproportionate impact on lower-income households but also households who have experienced poor credit ratings in the past, if they have previously not been able to pay rent, if they don’t have the ability to provide a really good reference, or if their income is just so low that they’re going to struggle to pay rent.”

In order for their landlord to qualify for a rent guarantee, tenants must generally provide evidence that their share of the rent does not exceed 40% of their monthly earnings. But in 2019 and 2020, the average household in London’s private sector spent 42% of its income on rent. In 2022, estate agent Hamptons International estimated that the average household spent more than half of its post-tax income on rent and household bills.

As a result, a growing number of lower-income tenants face exclusion from both the private rented and social housing sectors, Earwaker continued – earning too little to meet affordability conditions set by private landlords and insurers, but too much to qualify for social housing. “That middle group between social housing and the bottom of the private rented sector is already large… I think it will be growing because of things like this.”

Last year, the JRF found that 25% of low-income private renters were at risk of eviction. “That’s really, really worrying – particularly when we may also be seeing this coming through from an insurance or lenders’ side,” Earwaker said. “What happens if you’re already struggling? You’re being evicted. But then also when you go back out to the market there are just no properties that you can afford, because asking rents have gone up so much.”

Since September 2019, asking prices in the private rented sector have increased by 20% to 25%, while Local Housing Allowance stays frozen at 2019 levels, she added: “You’re looking at a double whammy here: insurers and mortgage providers and landlords are needing a higher threshold of affordability… and at the same time, you’re seeing real incomes decimated on the other side, because everything else is going up so much in cost while support has fallen.”

Income discrimination

Rose Arnall, solicitor at housing charity Shelter, told openDemocracy that blanket bans excluding tenants who receive benefits, or are not in full-time employment, amount to “income discrimination” – as do “inflexible requirements” that lower-income renters provide UK-based, home-owning guarantors or pay “excessive sums” of rent in advance.

Such practices disproportionately impact lower-income renters, Arnall added – particularly queer, racialised and disabled people, women, and institution leavers (such as those who have recently been in prison, hospital care, or accessing domestic violence support services) who may not have a permanent address.

In a landmark 2020 ruling, a district judge at York County Court found that refusing tenants because they receive housing benefits is unlawful and in breach of the 2010 Equality Act. These practices amount to indirect discrimination on the basis of gender and disability, the judge held, because women and disabled people are more likely to receive housing benefits.

Despite the ruling, affordability checks based on a tenant’s “individual circumstances” are still possible. In the 2021 English Private Landlord Survey, 37% of respondents with five or more properties said they were unwilling to accept renters who receive housing benefit or Universal Credit. In 2018, roughly 25% of respondents who said they would refuse tenants receiving benefits attributed this “reluctance” to conditions set by buy-to-let mortgage lenders and insurance firms.

Dan Wilson Craw, acting director at the campaign group Generation Rent, told openDemocracy: “If left unregulated, insurers will tend to do all they can to reduce risk and thereby reduce their own costs. But that will involve essentially profiling the tenants, using arbitrary criteria to determine whether they are suitable tenants… This is highly dangerous, particularly for the increasing numbers of people who don’t have a permanent, full time job, or rely on benefits even if they do.”

What can be done?

It’s been nearly four years since the Conservative Party pledged to ban no-fault evictions in its 2019 election manifesto. Proposals to reform the private rented sector were finally announced on 17 May as part of the Renters Reform Bill, which includes measures to stop landlords refusing tenants who receive benefits or have kids, as well as plans to scrap Section 21. “A big thing, when we are looking at these [landlord] insurance policies, is that there’s a reliance on Section 21 being here,” Earwaker said – “so I think [the bill] will be very, very helpful for that.”

But campaigners fear landlords will still be able to evict tenants indirectly – for instance, by using rent hikes to force renters from their homes. The bill will also make it easier for landlords to remove tenants for “anti-social behaviour” or falling into rental arrears.

In the last year, 300,000 private renters were forced out of their homes by rent rises, the London Renters’ Union says: “We cannot feel secure in our homes with the threat of a massive rent hike hanging over our heads. We need rent caps.”

The JRF has also urged government action to “[ensure] that renters can cover their housing costs and stay in their homes”. “The negative consequences of accruing rental debt are significant,” the group explained: “It can lead to eviction, impact people’s future opportunities for other rental properties and affordable lending… Rental arrears levels are high, and renters have inadequate support to address them.”

Local Housing Allowance must also be brought back in line with market rents, Earwaker said. “It shouldn’t be frozen – particularly during a cost of living and a cost of renting crisis.

“You can’t have a benefits system where every week there is a massive shortfall between the income you are getting through our so-called ‘safety net’, and basic essentials like energy, toiletries and transport. Those are the really vital things that we need to see to make sure that those on the lowest incomes can simply survive in the private rented market until we get more social housing in place that is a much better fit for those households.”