Referencing a new tenant is one of the most important steps in letting your property. If thorougher referencing isn’t done properly it can cost you thousands of pounds and a lot of time. The good news is that referencing is inexpensive and easy to do!
Why Should I Reference Prospective Tenants?
Every landlord wants to have ‘good tenants’ i.e. tenants that pay rent on time, look after the property and reside in the property for a long time. Proper referencing is the best way to achieve this. There’s always going to be a trade off between having a vacant property and finding good tenants. In the long run taking a little bit longer finding good tenants will save you money and hassle, and if conducted properly doesn’t need to be done often.
When Should I Reference Prospective Tenants?
Referencing starts as soon as you have contact with the prospective tenant. How do they conduct themselves over the phone, via email and in person? It’s up to you how much notice you take of this, but it’s an easy way of telling how they will notify you of anything during the tenancy. Search the applicant on social media (Facebook, LinkedIn, Instagram, Twitter, ect…) it can provide a wealth of information for free and before wasting any time.
More formal referencing starts with the Habitans Application for Accommodation Form, we recommend getting prospective tenants to populate the form before arranging a viewing, or completing it over the phone with them. This way if anything you don’t want in a tenant becomes apparent from the form then you haven’t wasted time with an unnecessary viewing.
If you are happy to proceed after the viewing then thorough referencing should begin. There are multiple options for thoroughly referencing a prospective tenant; DIY, using a referencing service provider, or using a lettings agent.
Right to Rent Check – Check the applicants identification and verify they are who they say they are. Use this link for the latest guidance: gov.uk Website
Previous Landlords Reference – Get in touch with a previous landlord for a reference. Be wary if the reference comes from the applicants current landlord, they may want the tenant out of their property.
Employers Reference – Get in touch with the applicants employer, confirm their employment status, start date, title and salary.
Income/ Affordability Check – Request the past 3 months payslips and/or bank statements from the applicant. You can apply a rule that if annual income is not 4x greater than the annual rent a guarantor should be used.
Credit Check – Perform a credit check on the tenant with your preferred credit check provider. (Experian, ClearScore, ect…)
Visit the applicants current home – Arrange a meeting with the applicant at their current address (you can use the excuse of needing to confirm their ID or need them to sign something). It can give you a good idea of how they treat their home. This definitely isn’t necessary and is possibly over the top, but it can provide more insight into an applicant, and can be a decider if you have multiple applicants and can’t make your mind up.
Using a Referencing Service Provider
This is the option we recommend as the information you receive is typically more in depth than DIY and you are usually provided with a risk score for the applicant. Choosing this option will cost you money (~£20), but it will save you time.
Most tenant referencing service providers usually provide you with the following information (much of this is the same as above):
- Right to Rent Check
- Previous Landlords Reference
- Employers Reference
- Income/ Affordability Check
- Financial History/ Credit Check – This will pick up any CCJ’s, defaults or bankruptcies
- Tenant Risk Score – This will advise how to proceed with the applicant, it may suggest using a guarantor or not to proceed
There are many tenant referencing service providers to choose from, here are a few we recommend:
- OpenRent – Speedy Reference in 1 Working Day £20
- OpenRent – Comprehensive Reference in 3-5 Working Days £20
- Advancedrent – tenantreferencing £16.99+VAT
Using a Lettings Agent
Most reputable lettings agents will use a referencing service provider (that’s what we do) to perform tenant referencing. So if you already use a lettings agent or are thinking of signing up with one for let only or fully managed then you can leave it with them. You can request the referencing information from the lettings agent and they should be more than happy to provide you with it. It is probably worth asking your lettings agent what their referencing process is, you should be able to determine if it is adequate after reading this guide.
Referencing a Guarantor
If a tenant reference advises you to proceed with a guarantor then you should definitely follow this advice and also reference the guarantor. You can use the same options as above for referencing a guarantor or you can do a more basic check.
A basic check should include:
- Home Ownership Check – This is the most important aspect of a guarantor reference. If a tenant falls into rent arrears they can move on and be difficult to chase for rent. If a guarantor owns their home it is far more difficult for them to just pack up and leave, so they can be more easily tracked for rent collection. You can ask to see mortgage statements or insurance policies for the property if they don’t have the title deed.
- Confirmation of Residency – This is also an important check as if the guarantor owns a home in the UK but resides in a different country, then they can be more difficult to chase for rent arrears. Passports, Drivers Licence, or a recent utility bill can be requested.
- Affordability Check – This can be an employers reference and/or payslips/bank statements. Apply the same, annual income must be greater than 4x the annual rent, rule for the guarantor. If they don’t pass this rule then you may want to consider different options such as rent guaranteed insurances or not proceeding with the application.
Final Few Points on Referencing
You Have to Cover the Cost of Referencing – The applicant can’t be charged for referencing or any other aspect of the application process. The Tenant Fees Act 2019 was introduced to prevent this.
Rent Guaranteed Insurances – Insurance policies exist to cover rent in case of arrears. These can be attained through many of the tenant referencing service providers mentioned above and most lettings agents will also offer this service.
Keep Your Adverts Live Until You Have a Signed AST – The application isn’t complete until the tenant has signed the AST and moved into the property. An application can fall through at pretty much any stage before the tenant moving in, you may also want to wait until the deposit and first months rent have been paid. If you remove your ad’s you may have to pay to have them go live again and potential leads could be lost.
Read our guide on Creating a New Tenancy
Found a tenant that you want to move into your property? Use our guide on Creating a New Tenancy to ensure everything is in place and all requirements are met.Creating a New Tenancy
You can also see all of our guides for landlords and much more in our Library.Library