Picking the right tenants to rent a home is a lot easier for landlords who have a screening process.
Landlords want tenants who pay the rent on time and look after their homes.
Once a landlord has a system for screening tenants, choosing a tenant becomes a streamlined and more sophisticated job, rather than sifting through endless emails and texts hoping for inspiration.
Instead, your prospective tenant interviews follow a template and applicants are scored against each other rather than on a hit-and-miss basis.
But how do you start the screening process?
Set up a screening process
Having a screening process means having a written procedure for accepting tenancy applications.
The process starts with a standard application form that each tenant completes. The form collects information like a tenant’s name, address, age, employment status and income.
Don’t forget landlords must not discriminate against tenants due to:
- Marital status
- Sexual preference
Three housing codes are available for England, Scotland, and Wales. The codes mainly help tenants but include information that assists landlords in identifying discriminatory actions.
Information to ask for
Landlords should have a written policy for onboarding tenants, so each tenant and application are treated the same.
The first step is designing an application form.
The form should include:
- Property address – so you know where they want to live
- Name, age and address of each tenant and other occupants, like children
- National insurance number of each tenant
- Nationality – for Right to Rent checks before moving in
- Employment details – for a reference
- Income – to check the rent is affordable
- Contact information
- Landlord history – for a reference
The form needs to include a section that permits gathering references.
The application form should also cover questions like do applicants smoke or have pets.
Some landlords rely on reference checks to help them select new tenants, and others don’t bother.
You will need an assessment check (similar to a credit check) if you intend to take out rent guarantee insurance, as the providers are unlikely to accept tenants after they have moved into a home.
A credit check is the most helpful reference as it shows if the tenant pays their bills on time and if they have any defaults or court judgments. After all, the likelihood is they will not pay the rent if they fail to keep up with credit cards or loan repayments.
Not all bad credit is a black mark. Some people have bad luck, like redundancy or severe illness that can wreck their finances. On credit checks, landlords should look for a regular history of missed payments.
Contacting a current landlord for a reference is generally a waste of time. If the tenant has rent arrears or is being evicted, the landlord probably won’t give an honest reference in the hope they will go quicker, and if they do provide a reference, you won’t be any the wiser over their conduct.
Meet your tenants
It’s always good to meet prospective tenants, which is often accomplished at viewings. This allows landlords to gain a personal impression and lets them go over the terms and conditions of the rental.
Once you have gathered your information, carried out the job and financial checks and provided a draft tenancy agreement, you must choose which tenant to go with.
At least your application form allows you to weed out anyone unsuitable along the way.
Handling holding deposits
Asking for a holding deposit to reserve a property is still allowed under the Tenant Fees Act, but with some limits.
A holding deposit is a refundable payment that should only be taken from one prospective renter at a time and is held whilst references are carried out, and the details of the let are agreed between the landlord and tenant.
The terms cover:
- Moving -in date
- The terms of the rental agreement
- The rent and when payments are due
- Who is living at the property
- The length of any fixed term
The Tenant Fees Act restricts the holding deposit to one week’s rent, calculated as the total annual rent divided by 52. So, the holding deposit for a £950 a month rent is £950 x 12 divided by 52, which is £219. We would generally advise to round down for safety (to avoid arguing whether it is one week), so in this example, you might round down to £200.
If the tenancy goes ahead, the deposit is generally credited against the first month’s rent or any security deposit.
If the landlord withdraws from the deal, the deposit must be repaid in full within seven days.
Landlords can keep the holding deposit if the tenant does not move in because:
- The landlord was given misleading information to secure the home
- The tenant fails a Right to Rent check
- Withdraws for other than a reasonable excuse
- Fails to go ahead with the tenancy
Checking rent affordability
Several formulas can help landlords check rent affordability for tenants.
Try this formula – Gross annual household income /30 = Maximum affordable monthly rent.
So, taking a monthly rent of £950 and a gross annual household income of £36,000, the calculation is:
£36,000/30 = £1,200.
As your tenant application form includes questions about gross annual household income, you should find this check an easy way to sort applicants who cannot afford the property from the rest.
Housing charity Shelter suggests annual rent that is 35 per cent of gross annual household income is putting tenants in financial difficulties.