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Landlords can never predict how renting a home will go, making tenant referencing an important critical task. Adequate referencing won’t stop problems from arising but hopefully minimises the risk of moving in a tenant who has had issues paying the rent of looking after a rented home.
The Tenant Fees Act bans charging tenants for references, so the cost of checks has switched to landlords, with many questioning the time and value of carrying out the inquiries. But failing to take tenant references can be a false economy.
Tenant referencing includes Right to Rent checks, a legal requirement for all landlords letting in England. Landlords with rent guarantee cover will 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.
Taking tenant references is an effective way to screen tenants who may have a chequered rental history or who cannot afford to pay the rent on a buy to let home. Millions of tenants live in private rented homes without a problem, but a small number of rogue tenants set a terrible example. Tenant references aim to confirm several points:
Checking references takes some time and comes with a cost. A property professional will probably complete the task in two to three days, but a private landlord with a day job can expect to take longer. Professionals are likely to charge between £15 and £40 for referencing each tenant plus small fees of around £12 for credit checks and £3 access to the Land Registry to confirm a guarantor or former landlord’s identity if needed. Under the Tenant Fees Act, charging the tenant these costs is illegal. Similar laws ban charging tenants upfront fees in Wales and Scotland. Landlords can choose to dispense with referencing, ask a professional to do the job or take the job on themselves.
Pre-screening is an excellent way to whittle down a list of potential tenants to a short list of possibilities.
A suitable application for accommodation should be used. We often say in training courses that in our view, a good application form is just as important (if not more) than a tenancy agreement!
Questions should include asking about income and work, if the tenant has pets and any adverse credit. Simple pre-screening should weed out unlikely candidates from the start and save landlords time and money on referencing.
Tenant referencing is a process which landlords should follow for every tenant. Here’s a list of the points to keep in mind:
Most rent guarantee insurers want to see every tenant is credit checked and pass the affordability check before the tenancy starts to support a successful claim under rent guarantee cover. They will often require you to use their own referencing, so you must check their terms carefully.
What to look for:
A clean credit history means no court judgments for debt or regular late payments that show the tenant has trouble paying regular bills on time. In addition, it's essential to have found them on the report (for example connected addresses are shown). A person who has not been found could be even worse as it could indicate they've given false information.
What to look for:
Bank statements will show when and how much the tenant is paid, how they spend their cash and if they live within their means.
What to look for:
A steady employment record and consistent income
What to look for: Affordability is assessed with income multipliers – for example, some services suggest 2.5 times the salary for tenants and 3x for guarantors. So, a tenant paying £750 a month of rent needs an annual salary of at least £22,500 to afford the payment, while a guarantor needs £27,000.
If the tenants do not have photo ID, you need a good explanation and decide if your other checks are adequate to confirm identity (also, this could cause Right to Rent issues).
What to look for:
Confirmation, the tenant is who they say they are.
What to look for:
The same name and address on each document, including the driving licence.
What to look for:
Confirmation that the tenant pays the rent on time and in full while looking after the rented property
What to look for:
Right to Rent must be carried out by law within the 28 days following the start of a tenancy (England only).
The government publishes detailed guidance about the check online, and we also have information about the Right to Rent here.
We always recommend a guarantor is taken for every tenancy regardless of the tenants work and affordability. It's a valuable backup if something goes wrong during the tenancy. If everything goes well, the guarantor never needs to be spoken to. We always advise that a guarantor should be home-owner although this is a preference not a requirement.
You can check home ownership quickly and easily on the Land Registry for £3.00.
Keep records to show adequate tenant references were taken out before they moved into a rented home. Besides copies of all the paperwork listed above, you will need written permission from each tenant to carry out the reference checks. The tenant should sign and date the document bundle to confirm they handed over the relevant paperwork.
Keep the bundle for the duration of the tenancy – especially the credit and affordability checks if you have rent guarantee insurance.