Landlords can never predict how a renting a home will go – which makes tenant referencing an important key task.
Adequate referencing won’t stop problems arising but hopefully minimises the risk of moving in a tenant who has had issues paying the rent of looking after a rented home before.
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, which are a legal requirement for all landlords letting in England.
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.
Why tenant referencing is important for landlords
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 bad example.
Tenant references aim to confirm several points:
- To identify the tenant
- An affordability check to make sure they can pay the rent
- Any past renting issues, like falling into arrears or failing to look after a home
- The tenant’s Right to Rent a home in England
- As evidence to support a rent guarantee insurance claim
How to reference a tenant
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.
Landlords can choose to dispense with referencing, ask a professional to do the job or take the job on themselves.
Pre-screening is a good way to whittle down a list of potential tenants to a short-list of possibles.
A suitable application for accommodation should be used. We often say on training courses that in our view, a good application form is just as important (if not more) than a tenancy agreement! The Guild now provides an online application for your prospective tenants to complete.
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.
The tenant referencing checklist – and the questions to answer
Tenant referencing is a process which landlords should follow for every tenant.
Here’s a list of the points to keep in mind:
- Credit checks – technically they’re not credit checks for a prospective tenant because no credit is being provided. Often a different name will be used such as “Tenancy Assessment Report” but the outcome is basically similar. The Guild provides a basic report for subscribers.
Most rent guarantee insurers will want to see every tenant is credit checked and passes the affordability check before the tenancy starts to support a successful claim under rent guarantee cover during the tenancy. 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, which mans no court judgments for debt or regular late payments that show the tenant has trouble paying regular bills on time. In addition, it’s important 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.
- Bank statements – you may ask for copies of bank statements for the past three months if you wish. Check start and finishing balances match so no pages are missed.
What to look for: Bank statements will show when and how much the tenant is paid, how they spend their cash and if they are living within their means.
- Employer references – we prefer to see a recent payslip because often employers don’t reply to requests. Otherwise, insist on responses on company letter-headed notepaper and follow them up by calling the person who signed to check the comments.
What to look for: A steady employment record and consistent income
- Affordability check – once you have confirmed the tenant’s regular income, carry out an affordability check. The check means establishing the tenant or guarantor can cover the rent from their income. The Guild report automatically displays a minimum recommended income.
What to look for: Affordability is assessed with income multipliers – for example some services suggest 2.5 times salary for tenants and 3x for guarantors.
So, a tenant paying £750 a month rent needs an annual salary of at least £22,500 to afford the payment, while a guarantor needs £27,000.
- Proof of identity – a passport is the ideal because it can also be used for the Right to Rent checks (see later). A driving licence is also a good way to check ID – you get a photo and a can confirm an address at the same time.
If the tenants do not have photo ID, you need a good explanation why 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.
- Proof of address – ask for utility bills or council tax statements that are no older than three months. Where possible, ask for originals that cannot be tampered with rather than scans.
What to look for: The same name and address on each document, including the driving licence.
- Landlord/Letting agent reference – write to a previous landlord to confirm the rent was paid on time and that any rented home has been well looked after. Don’t expect to receive anything other than a bland response. Be very cautious if checking a current landlord. If they are trying to evict the tenant, they will give you a good reference just to get rid of them!
What to look for: Confirmation that the tenant pays the rent on time and in full while looking after the rented property
- Right to Rent – At the start of a tenancy, all tenants aged 18 or over must show they have the right to rent a home in England.
What to look for: Right to Rent must be carried out by law within the 28 days leading up to the start of a tenancy. The government publishes detailed guidance about the check online. We also have information about Right to Rent here.
We always recommend a guarantor is taken for every tenancy regardless of the tenants work and affordability. It’s a useful 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.
Keeping tenant reference records
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 document bundle should be signed and dated by the tenant 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.