For landlords in the UK, securing new tenants can be both a fraught and arduous task. Fraught because getting it wrong risks loss of income, possible devaluing of a significant asset, and potentially even legal ramifications. Arduous because of the work involved; tenancy referencing means checking the tenant’s identity, right to rent, employment status, income, credit status, their rental history – and that’s not even everything.
Because of this, many landlords choose to leave tenant referencing in the professional and experienced hands of their letting agency. However, because we recognise that each landlord’s requirements are unique, today we’re happy to furnish you with our comprehensive guide to tenant referencing in the UK.
Below, we’ll give you everything you need to know to decide the best way for you to handle tenant referencing.
What is a Tenancy Reference Check?
A tenancy reference check is a process of checks carried out by landlords and letting agents. Its purpose is to confirm the identity and suitability of prospective tenants.
Viewed another way, tenant referencing is a necessary component of a landlord’s risk management strategy. That’s what it really is at the most fundamental level; we’ll come on to what is involved soon enough, but first and foremost it should be remembered that you are an investor.
An investor with an asset, an asset that’s supposed to provide you with both a regular income and a capital return over the mid-to-long term. Not carrying out tenant reference checks represents one of the largest risks to these two financial goals that a landlord can take.
Okay then, now that we’re in the right frame of mind…
Rental Reference Check – What’s Involved?
Right to Rent
This is a big one! Right to Rent makes it a legal requirement for landlords to confirm that any prospective tenants over the age of 18 have the legal right to rent a property in the UK.
You must confirm that they have the right to remain in the UK by confirming their identity and their immigration status. Here is a link to the government’s complete guide on checking your tenant’s right to rent, in case you require more details.
❗NB:
Landlords who rent their properties to someone not allowed to stay in the UK risk unlimited fines and possibly a custodial prison term.
Identity Verification
Identity verification is supposed to protect you both legally and financially. When referencing tenants, ID verification involves confirming the tenant’s name, date of birth, and current address.
This is done by verifying their information with official documents, such as a passport or driving licence, as well as recent official correspondence at the listed address, such as utility bills or bank statements.
Credit Check
Credit checks provide you with the confidence, as a landlord, that your prospective tenants are reliable and trustworthy, at least when it comes to financial matters. A credit check provides clear, detailed information on the tenant’s credit history, including any outstanding debts, bankruptcies, or County Court Judgments (CCJs).
Employment and Income Verification
Employment and income verification show that your prospective tenant has a stable income and that they can comfortably afford the rent. Ways to check someone’s income include requesting proof of employment, such as a recent payslip, or contacting the tenant’s employer for confirmation.
For self-employed tenants, you should ask for alternative proof of income such as recent invoices and bank statements.
References/Rental History Check
Checking the rental history by obtaining references from previous landlords is another key step in the referencing process. Doing this can provide invaluable insights. Not only will you learn of any evictions or late payments, but also whether or not the tenant has been responsible for damaging any of their previously rented homes.
Rental history checks also tip you off to other potential red flags, such as how often the tenant moves from one property to another. If the tenant is moving every six months, that might be indicative of potential issues that may have not been uncovered by other background checks.
Benefits of Tenancy Management Services
As noted at the start, many landlords choose to leave tenant referencing to a tenancy/letting management service. Often this is a sensible thing to do, as a tenancy management service can:
- Save you a lot of time
- Get the job done quicker and more efficiently
- Minimise loss of income
- Reduce the amount of time your property stays empty
- Handle any follow-up issues after the referencing process
For many people opting to use a tenant referencing service is simply another obvious part of their risk management strategy. The reason most people who invest in stocks and shares usually have their capital with managed funds is because they want their money handled by experts.
Many would argue that it should be no different when it comes to property investments. You can do it yourself, or you can leave your investment in the hands of people that truly understand the market and the risks.
Frequently Asked Questions (FAQs)
Who Pays for Tenant Referencing?
Landlords/letting agents pay for tenant referencing. Ever since 2019 and the introduction of the Tenants Fees Act, it has been illegal in the UK for landlords and letting agents to charge tenants for the referencing process.
What Happens if a Tenant Fails Referencing?
It’s not usually a great sign when a tenant fails the referencing process, but do bear in mind that there are a variety of legitimate reasons why some people may not meet every all the criteria mentioned above.
If someone has been living abroad for a number of years, for example, they may fail credit or reference checks but still be entirely suitable as tenants. Should this kind of situation or something similar occur, and you are still inclined to take them on as a tenant, you can seek additional protection by having them appoint a guarantor for the rent.
Conclusion
As we have seen tenant referencing in the UK is a comprehensive process and a significant undertaking.
We’ve also established that a tenancy reference check is an essential component of a landlord’s risk management strategy and that failing to secure a reference for tenants risks not only loss of income and asset devaluation but can also lead to undesirable legal issues, too.
If you would like to learn more about our tenant reference services, then you can get in touch here.
