Any landlord will tell you that renting out a house takes months of effort. It can be very tempting to move a new tenant in as soon as possible after months of chasing solicitors and mortgage advisors to get the sale through, as well as the work that goes into bringing the property up to code and marketing it to prospective tenants, so that you can start financially benefiting from the fruits of your labour. However, before signing the contracts, you should conduct a tenant reference check to guarantee that your investment is safe. After all, it might be tough to evict a renter once they have moved into a house. In order to help you understand how long tenant referencing takes, we’ve put up a Landlord-Tenant Referencing Guide.
What Is Tenant Referencing?
A thorough reference check assists a landlord in determining whether or not a prospective renter is fit for their rental property. It contains vital information on a renter’s employment history, financial ability to pay rent, and previous landlord interactions.
Landlords can use tenant profiling to assess any potential dangers and boost their chances of finding a tenant who will care for the property and pay their rent on time.
These checks can be organized by letting agents on your behalf, or you can handle them yourself through a variety of tenant referencing organisations.
What does tenant referencing involve?
Different estate agencies may vary slightly in their tenant referencing approach, but broadly, they carry out the following checks:
#1. Credit Score Check
Your credit score is a three-digit indicator of your trustworthiness when borrowing and repaying money. Your credit score improves as the number rises. This check will also reveal any credit concerns, such as loan defaults or bankruptcy filings.
#2. Tenant Affordability
This is a straightforward test to see if the prospective tenant can afford the agreed-upon monthly rent. This is accomplished by verifying their salary level as well as their employer. Who may be able to provide a reference?
#3. Previous landlord referencing
The applying tenant’s prior landlord may be contacted by the landlord or estate agent to inquire about their renting history. The prior landlord’s view of the renter will carry a lot of weight, much like a work reference. As a result, keeping excellent ties with them is always beneficial!
#4. Right to rent
In England, all landlords must verify that their intended lodger has the legal right to rent their house. This gov.Uk article will show you how to check if you’re a landlord renting out your house without hiring an estate agent.
Can I get my holding deposit back if I fail to reference?
If you fail your tenant reference check, the landlord or rental agent should refund your holding deposit. This is assuming you provided accurate, complete information and did not voluntarily withdraw from the process.
If you follow these guidelines and the tenancy does not go through. You are entitled to a full refund of your deposit. There are no fees or deductions that the landlord or agency can make.
How does the tenant referencing process work?
Tenant reference entails a series of checks that provide the landlord with all of the information they require to determine a renter’s eligibility for their property.
Although each referring company may take a somewhat different approach, the majority of complete tenant referencing checks will cover the following:
- Proof of address:Â Recent utility bills and bank statements prove that the tenant lives in the address they’ve given
- Proof of ID: Receiving a copy of a valid driving licence or passport confirms the tenant’s identity
- A credit check shows whether the renter is in debt or if they have any County Court Judgements (CCJs); you’ll need to ask the tenant’s permission to do this
- A previous landlord reference lets you know more about the tenant’s rental history and any arrears, damage or disputes
- An employment reference confirms the tenant is being paid regularly and is who they say they are
- Bank statements: three months of statements can give key information about a tenant’s financial situation
- Right to Rent Checks:Â Landlords are legally required to check that prospective tenants have the right to rent in the UK
How do you arrange a reference check for a tenant?
If you hire a rental agent to find a tenant or fully manage your home. Tenant referencing is almost always included in their service.
If you self-manage, you can pay a referring company a nominal up-front fee of £10 to £50 to perform the check.
Landlords in England have been prohibited from charging tenants for referencing checks since 2019, thanks to the Tenant Fees Act. Scotland and Wales have enacted similar legislation. This means that the landlord or their letting agent is responsible for all referencing fees.
Using tenant referencing companies
Although you can gather all of the information for a referencing check yourself. Using a tenant referencing company is easier and more effective.
When selecting a supplier to deal with, take factors into account. Such as the speed with which checks are completed, the level of detail required, the cost, and the company’s reputation.
You’ll need to evaluate what level of tenant referencing is appropriate for you, and keep in mind that paying a little extra now could save you money in the long run.
You can review the results and decide whether the tenant is fit to rent your property once you’ve picked a service and the check has been finished.
What happens if a tenant fails the referencing check?
The majority of tenants will pass their background check, but others will fail all or part of it.
For example, if the renter has a low credit score, their credit check may fail, or their employment references and bank statements may reveal that they cannot afford the rent.
There may be good reasons why a tenant fails a section of the referencing process. But that does not preclude a landlord from renting to them.
However, you should think about this carefully and double-check whether letting a renter who has failed their referencing will void your insurance coverage.
It’s illegal to rent your property to a tenant who fails a Right to Rent check, and it’s also illegal to refuse a lease because of discrimination based on gender, ethnicity, or religion.
What other checks can landlords carry out?
Aside from thorough referencing, there are a few things you can do to learn more about potential tenants and whether or not they’re a good fit for your home.
Meeting potential tenants throughout the application process can be a good way to evaluate if they’re a good fit and if you can build a nice relationship with them.
Another option to get additional information that may assist you in making a decision is to look at their social media sites.
There are a few warning signals to look out for that could suggest a troubled tenant or someone attempting to defraud you. These are some of them:
- Acting suspiciously
- Being hard to contact
- Refusing to provide information
- Demanding to move in instantly
Most landlords will use a combination of referencing checks, gathering extra information, and gut instinct to choose their tenants.
How long does tenant referencing take?
Depending on which tenant referencing service you select, the cost may differ. Most businesses, on the other hand, attempt to conduct a check within 48 hours.
If tenants have all of their information and documents ready at the outset of the process, checks can be conducted swiftly.
The most likely factors to slow down the process are previous landlord and employer references. Making direct touch with tenants might sometimes help speed things up.
What can I do if I fail my tenant referencing checks?
You’ve applied for a rental, and your references have come back negative? You still have a chance to convince the landlord to accept your tenancy. Landlords have the option of taking on renters who have failed credit checks or other referencing checks, and they do so routinely. Because it’s all a negotiation, try the following:
#1. Ask for a letter of reference from your employer
This can prove that you are at a better credit risk than your score might suggest.
#2. Ask which referencing elements you failed
There are many problems that have a simple explanation. For example, you may have a low credit score because you’ve transferred bank accounts too frequently or haven’t taken out a loan in a long time. The landlord may be more willing to take you on if you can tell your side of the story.
#3. Offer to arrange for a guarantor to secure your tenancy
For tenants with poor credit, this is often the best way to reassure landlords that rent will be paid regularly.
What happens if the tenant fails the reference?
It’s a good idea to pay attention to the information provided in the tenant reference, but it’s not required. Even if a renter fails the reference, you have the option of renting the property to them if you so desire. However, keep in mind that they most likely failed the reference test for a reason. So you might want to dig more into why they failed before signing any contracts. It could, for example, be a matter of an incorrect address on the credit file that can be easily corrected. On the other side, they may have failed because their annual salary is below the affordability criteria; therefore, you should check to see whether they have any other sources of income that would help them pay the monthly rent.
Alternatively, you might ask them to get a guarantor. A guarantor will agree to co-sign the tenancy agreement. Effectively making them financially responsible for the rent indicated in the leasing agreement if the tenant is unable to pay. A guarantor can cover all or part of the rent, and a tenant might choose to have many guarantors for a single leasing agreement. A guarantee effectively provides the landlord with the assurance that the rent will be paid if the renter runs into financial difficulties.
If the tenant needs a guarantor, the landlord can choose to reference both the guarantor and the tenant. However, you must specify on the referencing application that they are the guarantor and not the tenant. As this will allow the reporting agency to skip certain elements, such as the previous landlord reference.
Why is it a good idea to carry out a tenant reference?
As previously said, evicting renters after they have lived in the property can be challenging. With new regulations being introduced every year to protect tenants’ rights against unjustified or revenge evictions. While this is clearly beneficial to tenants and ‘generation rent. It also means that if a tenant falls behind on their rent or breaches their tenancy agreement. It can take a landlord several months to reclaim their property, especially if the tenant refuses to leave after the eviction notice period has expired. Which can lead to the case going to court.
Getting a tenant reference can give you peace of mind that your tenant can pay their rent. Because a tenant reference can establish their credit history as well as their affordability. Although there are always unforeseeable events that could lead to an eviction (for example, if the tenant loses their job). Verifying their income before the lease begins can give you a rough indication of whether they’re likely to fall behind on their rent.
It’s crucial to remember that obtaining a tenant reference does not eliminate the necessity for you to do a ‘right to rent check on your tenant at the beginning of each tenancy. Prior to the start of a tenancy, you must conduct checks on your tenant to establish their permission to rent in the UK. Which has been a legal requirement since February 1, 2016. Failure to do these inspections might result in a punishment of up to £3,000 per illegal occupant. So it’s worth double-checking that you’re following the law.
Conclusion
Tenant referencing and additional research can assist you in ensuring that you have the best tenants possible. This ensures a seamless tenancy in which your property is well-maintained and your rent is paid on time and in full.
You’ll need to draft a tenancy agreement when you’ve completed the referencing procedure and accepted an offer from tenants.
Following that, you’ll need to prepare for the move-in. Which includes taking important steps like collecting a security deposit from tenants and preparing a full inventory of the property. Taking these precautions will provide you with the security and peace of mind you require to get the most out of your investment.
FAQs
Can I still rent if I fail a credit check?
If you fail a credit check, explain why you think this might have happened. If you know you can pay the rent, tell your landlord or letting agent. They might still rent to you if you offer to pay a larger deposit, more rent in advance or if you can get a guarantor.
Who pays for tenant referencing?
Since 1st June 2019, tenants can no longer be expected to pay for their reference checks. This cost must be covered by the landlord of the letting agency, including the cost of any guarantor references that could be required. If the tenant fails the reference check they still cannot be charged for the service.
Is tenant referencing a legal requirement?
Do All Tenants Need To Be Referenced? Yes. All adult tenants aged 18 and over must be named on the Tenancy Agreement and whether they are contributing financially to a share of the rent, all tenants will be required to have a reference check completed.
