Do I have to do Tenant Referencing?
The straight answer to the question in the title is – you’d be crazy not to. That’s because tenant referencing is a vital component in the letting process. Why? Because it gives you peace of mind that your tenant will actually pay the rent and is a responsible person.
Another reason to tick the Tenant Referencing box when letting out your property is that failure to do so could make your landlord insurance invalid. And you definitely don’t want anything to go wrong in that respect.
Do I Have to Do It Myself?
Tenant Referencing can take some time and it isn’t always easy doing credit checks. And that’s landlords these days use one of any number of registered Tenant Referencing agencies to carry out the checks. Of course, you will pay for this. But here at Property Loop we reckon it’s definitely worth it. And it’s not that expensive either, in the scheme of things. For instance, you can expect your typical Tenant Referencing agency to charge anything from £15 up to £30 per individual they check out.
A tenant who doesn’t pay his or her rent several months into the tenancy can cause a lot of trouble and if they refuse to move out, you’ll spend a fortune going down the legal route.
So, a bit of money upfront to check the tenant is kosher is certainly worth it. And, anyway, you will be able to claim the fees paid for Tenant Referencing as a tax expense in your next self-assessment form.
How Does Tenant Referencing Work?
Usually, when a prospective tenant comes along they give you a holding deposit and then wait until you have checked their references before taking up the tenancy.
Those refences include a check on how much they earn. They should really be able to afford 2.5 or even 3 times the annual rent you’re charging.
Your prospective tenant’s credit file will also be checked to ensure they don’t have huge debts. This will also flag up issues such as bankruptcy and county court judgements and it’s up to you if you see this as a problem or something in the tenant’s past that they’ve coped with an moved on. In other words, that it’s no longer an issue.
Other reference checks include previous addresses and, if the individual has rented before, to get a letter of recommendation from a previous couple of landlords (if possible).
Incidentally, just because a prospective tenant has passed a Tenant Reference check, it doesn’t mean that you have to let your property to them. Perhaps on meeting them you get a gut feeling that you shouldn’t rent to them. That’s fine – just hand them back the deposit and keep looking. Usually, though, there is no problem.
Tenant Referencing – in a nutshell
- Previous addresses
- Letter of employment
- Bank statements going back three months
- Tax return and accountants’ letter of earnings if self-employed
- References from previous landlords and employers
- Guarantor if necessary
Credit Check – in a nutshell
- If they can afford rent (ratio)
- Missed payments
- Previous county court judgments (CCJs)
- Times at previous addresses
- Electoral register
Can You Rent Without a Guarantor?
For students and other young people who perhaps won’t pass the personal income test (because they are not earning enough), then often a guarantor is used. This is when a parent or some other individual will agree to cover the rental payments. Obviously, you are not going to take the guarantor’s word for it so they must be checked out too.
Guarantors can be an excellent solution for a student – and great for a landlord too. That’s because it’s not uncommon for a guarantor to pay six months’ rent upfront.
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