Whilst strictly speaking there is nothing legally compelling an owner of a rental property to conduct referencing checks on those that wish to reside in their rental property, the overwhelming majority of landlords choose to do so. This is because the tenant referencing process is by far the most comprehensive assessment of an aspiring tenant’s suitability for the rental opportunity.
As can be expected, no landlord wishes to find tenants to occupy their rental property, only to discover they have neglected its furnishings and appliances, caused numerous complaints of excessive noise and anti-social behaviour, failed to report any needed repairs and begins to accumulate rent arrears. The tenant referencing process is widely revered by buy to let property owners by its ability to address the common apprehensions that come with renting a property, giving landlords peace of mind that they have not only found their ideal tenant, but won’t experience any aggravation during the tenancy.
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Quite simply, the tenant referencing process grants landlords with an overview of those that wish to rent their rental property. The evaluation process will take into account the tenant’s rental history, their employment status and credit history amongst other things, in an effort to ensure that landlords can make an informed decision as to who they let their rental property out to.
As mentioned the primary purpose of the tenant referencing process is to assess a potential tenant’s suitability for a rental opportunity. Perhaps most crucially, the tenants will have to undergo a series of “affordability tests” that evaluate if the tenant will be able to uphold their financial obligation to make regular rental payments to the landlord. These tests will demand that the aspiring renter does not hold any previous county court judgements, or otherwise outstanding debt to their name, alongside a consistent income detailed through the last three months bank statements. Further to this the tenants will also need to prove their employment status and right to rent, with the occasional reference also being requested from their employer. Additionally the renter will need to show a valid proof of address and photo identification, usually achieved through providing the new landlord with utility bills, passport or driving license. In most cases the tenant will also need to provide the new landlord with a reference from the owner of the last property they let out, allowing them to know if the property was returned in a good condition at the close of the fixed term and if any rent arrears was accumulated.
As we can appreciate, some rental property owners love the challenge that can come with being a landlord, engrossing themselves in the DIY mantra and hands on approach. So can you do tenant referencing yourself? Well, whilst it is possible, it is highly uncommon. The rental landscape is adorned with impartial tenant referencing companies that will handle this process for the landlord, albeit for a fee. As we have mentioned the referencing process is extremely comprehensive and online letting agents, alongside tenant referencing companies are extremely adept at assessing the potential fit of a tenant for a rental opportunity. With this being said most companies and letting agents will grant this opportunity to the landlord at a steep premium of around £40 per tenant, making the search for the ideal tenant not only a race against the clock, but an effort to not burn a hole in your wallet.
However, when hosting your rental opportunity with PropertyLoop we provide the tenant referencing serve to landlords as standard, allowing rental property owners complete freedom in finding their next tenant. We also understand the importance of finding the right fit for you, and the nightmares that can come with rushing a tenant into a rental simply to circumvent void periods. To this end when referencing your tenants with PropertyLoop we will provide you with not only a reference from their most recent landlord, but go far beyond what is typically offered in the industry, giving property owners a full rental history of their prospective tenants, offering them a reference from each of the renter’s previous landlords. Not only that but we ensure that landlords are paid before we are! Taking a modest 5% from the initial rental payment regardless of how many tenants you would like to evaluate before they move into your rental property.
It goes without saying that the tenant referencing process is an imperative aspect of any landlord’s rental journey. Whilst the assessment’s findings on each aspiring tenant shouldn’t be dismissed, neither should a potential tenant that has failed referencing. Of course, if a tenant has been unable to provide you with consistent details regarding their identification, their right to rent, has an appalling reference from their last landlord and has an undesirable financial history, it goes without saying that these red flags should still be observed. However, perhaps a landlord’s greatest concern is the maintenance of their income, but there are several precautionary actions a landlord can take in order to quell their apprehensions and still offer a rental opportunity to most tenants.
In the instance that a prospective renter fails the referencing process, particularly the credit checks then a landlord will naturally become hesitant to let out their rental property to this aspiring tenant for fear of taking on an occupant that may not be able to uphold their commitment to regular rental payments. Similarly landlords who choose to let out their rental property to full time students are face with an aspiring tenant that will more than likely have no rental history, credit lines or consistent source of income, making the tenant’s ability to pay their rent and the likelihood of adhering to the terms of the tenancy agreement difficult to assess.
With this in mind, when faced with these situations it is likely that the landlord will request the tenant finds a guarantor. Simply put a guarantor is an additional party to the tenancy agreement that will be liable for any debts that the tenant accrues. In the circumstance that the tenant becomes unable to pay their rent, or causes excessive damage to the property beyond the amount taken for the tenancy deposit, the party nominated by the tenant to be their guarantor will have to pay the appropriate amount in absence of the tenant. However, this is more than a formal agreement, with the guarantor being legally bound to the commitment to cover any missing due amounts.
However, whilst this may seem a way in which another party could become indebted to the landlord or letting agent, the guarantor must be subject to the same financial scrutiny as the tenant, ensuring that they will be able to cover any amounts that they become liable for. These financial assessments are similar to that of the referencing process, seeing the guarantor’s credit history, income and employment status be evaluated before their position as guarantor is authorised.
Additionally, landlords that encourage tenants to obtain a guarantor are making renting more accessible to those that would otherwise struggle to find their next home. It goes without saying that having an additional party that is liable to pay the tenant’s rent if they fail to do so will grant the landlord with complete confidence in their income, whilst also providing security in their residency to the tenant, significantly reducing the chances they would become evicted through rental arrears.
If a landlord is looking to take additional measures to safeguard their rental income, providing that they have referenced their tenant, they could take out rent guarantee insurance. Sometimes referred to as default insurance, the policy will offer financial protection to the landlord in the instance that the occupant of the property is unable to pay their rent. With this being said, these insurance policies will commonly only provide this protection to the landlord up to a certain figure, or for an agreed upon period of time, meaning landlord will be protected regardless of their monthly rental charge. Whilst the specifics of what each policy will offer to the landlord, in some cases if the landlord wishes to pursue the tenant for any missing rental payments the policy will cover the associated legal costs. However, in most cases if the tenant abandons the property, or is evicted, the policy will not provide the landlord with any missing rental payments. It is also essential that before a landlord takes out a rent guarantee insurance policy that the small print and terms are assessed, this is because if the tenant is unable to show that they have a consistent income, are a full time student, or are in receipt of financial support, the policy may not cover the landlord for missing rental payments.
Another way in which a landlord would be able to address any potential concerns surrounding an aspiring tenant’s ability to keep their obligation to make regular rental payments, they could request that they pay rent in advance. As can be expected this is typically applied to prospective tenants that either fail the financial assessments comprising the tenant referencing process, or the perhaps a previous landlord provided a less than stellar reference. Whilst this does result in a compromise, allowing the tenant to potentially rent a property that would otherwise be unobtainable, whilst giving the landlord the financial security they need; however, this can be an incredible high upfront costs for tenants, potentially deterring them from the rental opportunity. With this in mind there is no legal limit to the amount of rent a landlord is able to request that the occupants of the rental property pay before moving in; typically however, prospective renters are asked to provide around six months’ worth of rent in advance.
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