A quick guide to Tenant Referencing
As a Landlord, you can never predict how renting a home will go, making tenant referencing an important task. Adequate referencing doesn’t always stop problems arising, but it hopefully minimises the risk of having a tenant who has issues paying rent or looking after a rented home.
What is tenant referencing?
Tenant referencing refers to a thorough referencing check that helps landlords decide whether a prospective tenant is suitable to rent their property. It provides information on the tenant’s employment history, ability to pay rent and previous dealings with landlords. Tenant referencing also includes Right to Rent checks, which are legal requirements for all landlords letting in England.
HW Residential Lettings can organise these tenant referencing checks on your behalf.
Why is tenant referencing important for landlords?
Profiling tenants allows landlords to consider potential risks and increase their chances of letting to a tenant who will look after their property and pay rent on time. Landlords with rent guarantee cover will also have to show their insurer that adequate references were made before the tenant moved in if they want to make a successful claim against the policy. Millions of tenants live in private rented homes without a problem, but a small number of rogue tenants can set a bad example.
Thorough referencing aims to confirm several points:
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To identify the tenant
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Affordability check to ensure they can pay rent
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Checks for any past renting issues e.g. falling into arrears or failing to look after their rental
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The tenant’s Right to Rent a home in England As mentioned, evidence to support a rent guarantee insurance claim
How does the tenant referencing process work?
Tenant referencing involves several checks to give the landlord all the information they need in order to decide on whether the prospective tenant’s suitable for their property.
Comprehensive checks will include:
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Proof of address – recent utility bills and bank statements. Proof of ID – a copy of a driving licence or passport.
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Bank statements – three months of bank statements can give key information regarding their financial situation. This will show when and how much the tenant is paid, how they spend their money and if they live within their means.
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Right to Rent checks – legally required to check the prospective tenant has the right to live in the UK. This must be carried out within 28 days following the start of a tenancy.
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Credit check – will show if the tenant is in debt or has any County Court Judgements (CCJs). Tenant’s permission will be needed to carry out a credit check. Most rent guarantee insurers want to see every tenant is credit checked and passed the affordability check before the tenancy starts.
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Affordability check – will confirm if the tenant can cover the rent from their income. Affordability is assessed with income multipliers – e.g. some property professionals suggest 2.5x the salary for tenants and 3x for guarantors. A tenant paying £600 a month (£7,200 a year) rent needs an annual salary of at least £17,400 to afford the payment. A guarantor would need £21,600.
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A previous landlord/letting agent reference – will provide tenant’s rental history, any arrears, damage or disputes. However, be cautious if checking a current landlord; if they are trying to evict a tenant, they may give an excellent reference to get rid of them.
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Employment reference – will confirm the tenant is paid regularly and is who they say they are.
Do it yourself or use an estate agent to tenant reference?
Tenant referencing can be a time consuming task. You can either arrange a reference check through a property professional, or you can do it yourself. A property professional will likely complete the referencing in two/three days. A private landlord can expect to take longer. Professionals are likely to charge for referencing each tenant plus other fees such as credit checks and accessing the Land Registry (if the guarantor or former landlord’s identity is needed).
It will be cheaper for you to do it yourself, but it will be more time consuming, and may not be as thorough as a property professional.
At HW Residential Lettings, tenant referencing is included in both of our lettings services, free of charge.
What happens if a tenant fails the referencing check?
The majority of prospective tenants will pass their referencing checks, but some may fail part of the process.
There could be valid reasons why a tenant fails part of the referencing process and it doesn’t always mean that a landlord can’t let their property to them. For example, if they failed their credit or affordability check, you could still consider letting to the tenant if they can provide a guarantor who will pay the rent if they are unable to.
It’s important to consider letting a tenant who has failed their referencing and whether it will invalidate your insurance policy. It’s also important to note that if they fail their Right to Rent check, it’s illegal to let your property to them.
Using a Guarantor
If the potential tenant fails their referencing check, you can ask them for a guarantor. A basic check on the guarantor will be carried out to ensure they are who they say they are and can afford to cover the tenant’s rent if they are unable to pay.
Some property professionals will recommend a guarantor is taken for every tenancy, regardless of the tenants work and affordability. It can be a valuable backup if something goes wrong during the tenancy. This is completely up to you, whether you ask for a guarantor every time.
