Apr 27, 2020

An Easy Guide to Tenant Referencing for Landlords

Most tenants are reliable and do pay their rent on time, but if you are unfortunate enough to end up stuck with an unreliable tenant, a whole world of pain will shortly be heading your way. Referencing and checks can help a landlord decide whether a tenant is likely to be reliable.

In this guide, we are going to look at tenant referencing in more detail. We’ll look at the different things you need to check and what’s covered by a professional tenant referencing service.

Why Should you do Tenant Referencing Checks?

A landlord takes a considerable risk taking on a new tenant without running a few checks first. Some landlords skip the tenant referencing stage because they know the person; at least they know them via social media or a friend of a friend referred them. This can often help to prevent issues, but it’s still wise to run basic checks.

It’s also tempting to skip checks when you are desperate to have a tenant installed and paying the rent. But you do this at your peril.

Finally, yes, checking references is a pain and it can also cost you money if you use a service to do the legwork, but remember, for a small up-front cost and your time, you get peace of mind. It’s a lot cheaper to pay a small cost up front than have to evict a problem tenant later.

Use Tenant Referencing to Avoid Problem Tenants

A thorough tenant referencing protocol won’t entirely eliminate your risk of letting to a problem tenant, but it does significantly reduce your risk, which is about the best we can hope for.

An experienced landlord uses a tenant referencing checklist to help them spot any red flags. Should any arise, it’s wise to quit while you’re ahead. In today’s tricky buy to let climate, it really isn’t worth letting to a tenant who might cause your problems further down the line, even if it means your property is empty for another month or two. After all, a two-month void is still cheaper than fighting a clued-up problem tenant through the courts for nine months.

Dealing with a problem tenant is always stressful. It can also be ruinously expensive. By running some basic checks, you’re saving yourself a boatload of worry. And in the case of immigration checks, a huge fine.

Using a Letting Agent for Tenant Referencing

Letting agents typically include tenant referencing as part of their tenant finding service. This applies whether you stick with a high street agent or opt for an online letting agent (but do check the small print before you make an assumption).

Whilst it is tempting to leave the agent to do their thing (you are paying them, after all) it’s still wise to run a few checks yourself. A credit check will uncover whether a tenant has any CCJs or has been made bankrupt, but it might not reveal other problems, such as an aversion to cleaning or a passion for breeding Pitbulls.

Don’t rely on what the agent says either. Not all letting agents do a thorough job.

Use a Tenant Referencing Checklist

Unless this is your first and only property, and you have no intention of investing in any more rental properties, it’s wise to have a tenant referencing checklist. Use this as your blueprint each time you start looking for a suitable tenant. You can tick off each job in order, so nothing is inadvertently missed.

Note: If you use Landlord Vision you can save your checklist and any other documents in the software. This is a great way to maintain evidence that you’ve carried out Right to Rent checks and an audit trail that you’ve done your due diligence on the tenant.

Do Tenants Meet Your Minimum Requirements?

Before you do anything, assess your tenants carefully to make sure they meet the minimum requirements. Have a telephone chat. Ask a few basic questions, such as whether they work, are they a smoker, how many kids do they have, pets, etc.

Pre-screening is a useful way of weeding out any unsuitable applicants, such as tenants with pets being screened for a property that doesn’t have a suitable garden. If a tenant is happy to answer questions and seems reasonable on the phone, you can move on to the next stage in the referencing process.

Ask Potential Tenants for Personal Details

Organise a property viewing where you can meet the tenant and they can decide whether the property is right for them. If they are happy, give them a tenancy application form to fill in. Ask for key information, such as their name, current landlord, occupation and employer, details of any guarantor and referee, etc. Remember, you will need to make sure you are following GDPR rules when asking for and processing this information. Asking the tenant for this information will allow you to carry out further checks, for instance a credit check.

Ask Tenants for ID

It’s very important that you verify the applicant is who they claim to be. Not only is this essential for the Right to Rent check (see below), but if a tenant is using a false ID then you have zero chance of pursuing them for unpaid rent and/or damages if there’s a problem later.

Ask to see a copy of the tenant’s passport, photocard driving licence, or ID card.

If the person has no photo ID, which is possible if they don’t drive and have no passport, then you’ll need to see bank statements, utility bills, council tax bills, and anything else that can confirm their identity.

Take copies of all ID documents and if the tenant can’t provide a photo ID, take a photo of them for your records.

Note: some landlords won’t accept a tenant unless they can supply a photo ID.

Right to Rent

As of 2014, landlords (and letting agents) are required to check the immigration status of tenants living in a rental property. Children aged 17 and under and guests are exempt from checks.

Only people with permission to be in the UK are allowed to rent a property. This includes:

UK and EEA citizens
Anyone granted indefinite leave or settled status
Refugees and people under humanitarian protection
Adults in the UK on a work or student visa
Adults granted a time-limited ‘right to rent’ by the Home Office (additional checks must be carried out every 12 months)

Landlords must check relevant documents (e.g. passport) to determine whether a tenant has the Right to Rent. If you are in any doubt at all as to the documents you can accept for a Right to Rent check use the government’s Right to Rent Check Document Guide.

If documents are held by the Home Office, visit this link to request a Home Office right to rent check.

Check a Tenant’s Income

If a tenant is working, it’s important to verify whether their income covers the rent. Firstly, check whether they do work for the employer listed on the tenancy application form. Ask to see a contract of employment or a letter written by their employer stating they do actually work there and are not being made redundant in the next week or so.

For tenants claiming benefits, ask to see proof of benefit entitlement, such as a letter from the DWP.

Assess a Tenant’s Finances

Ask the tenant to provide copies of their bank statements going back at least three months. This should help you verify their income and outgoings, so you can make sure they can afford the rent.

In simple terms, an affordable rent figure is approximately 30% of a person’s monthly income. ONS data shows that UK tenants pay, on average, 27% of their income on rent. In London, the figure is much higher, with some people spending more than 70% of their income on rent.

Be wary of a tenant who appears to have a lot of debt or lives in their overdraft from one month to the next. Tenants that can’t manage their money well are going to struggle to pay the rent on time.

Ask to see payslips from their employer so you can verify their salary/wages. If the applicant is self-employed, ask for a copy of their SA302 from the last three years. This can be printed off from the self-assessment portal.

Consider Asking The Tenant for Rent Guarantors

Not all tenants pass a financial check. Some (like students) have no or limited financial histories; others have had debt problems in the past. In this instance, a rent guarantor can act as the bridge between the tenant and landlord.

A rent guarantor is someone who can cover the rent or pay for any damage to the property if the tenant is unable or unwilling to do so. A tenant can nominate a parent or other relative, or even a friend. It’s customary to run a credit check on a guarantor as well as the tenant. Otherwise, you might end up with a nominated guarantor that doesn’t exist or is in no position to pay anything.

Using a Professional Tenant Referencing Service

Once you have completed initial checks, it’s time to dig a bit deeper into your tenant’s financial history.

Letting agents usually offer this service, but if you are not using them, read on.

There are companies that offer a professional referencing service. This typically includes:

Financial checks
ID checks
Income references
Verifying references from former landlords
Risk score

Some of this you may already have done, for example, checking with a previous landlord and asking to see a tenant’s photo ID. But it’s still worth paying a relatively small sum to have a professional run thorough checks on a potential tenant.

Open Rent offers a tenant check service for £20. They provide a one-day service that checks a tenant’s credit history, CCJs, linked addresses, and Right to Rent. If you have more time, for the same amount, you can request a more comprehensive reference that looks at income and employment, affordability, and previous landlord references.

The NLA also offers a similar service. For £8.95, NLA members can run an instant basic check on a tenant’s ID, right to rent, linked addresses, and CCJs/insolvency. A full check costs £24.50 for full members. Non-members can also use the service, but it costs slightly more.

There are other services out there too, so look around and select the one that offers the best value and will provide results in the time frame you need.

Note: you must ask the tenant for their written permission before you run a credit check on them. This also applies if a third-party, i.e. a letting agent, is doing the check. Let your tenant know before you do anything, and if they object, it can be an indicator that they wish to hide something.

Ask Your Tenant for a Landlord Reference

References from a previous landlord should be checked. Tenant check services look at these if you buy the more comprehensive package, but it’s wise to make your own checks too.

Verify whether the landlord is legitimate and not just a relative pretending to be a landlord. Be aware there are also scammers out there that provide fake references, so checking is essential.

There are several ways to check a landlord’s references:

Call up the landlord and pretend to be a prospective tenant. If they seem confused or not interested in talking to you, they are probably not a legitimate landlord.
Check them out on social media – any legitimate landlord will likely have a social media presence.
Call their local housing department to see if they are registered – in areas where landlords must have a licence, a legitimate landlord will be known to the housing department.
Ring any numbers provided and ask questions about the tenant, such as how reliable they were at paying the rent and whether they kept the property clean and tidy. Ask them to verify the dates of the applicant’s tenancy, the names of the tenants, and other pertinent details. Any decent landlord will have all this information to hand.
Cross-check telephone numbers to make sure they match up with the names given.
If you have any suspicions or answers provided are vague, dig deeper. Prolong the conversation and chat about general landlord issues. If the person you are talking to seems uncertain about landlord matters, they may be fake.

Always listen to your gut. When something doesn’t feel right, look beyond the obvious.

Visit the Tenant’s Current Property

Since the tenant will have provided you with their current address, unless it’s hundreds of miles away, consider doing a drive-by. Red flags to look out for include:

White goods abandoned in the garden
Mountains of bin bags and miscellaneous rubbish
Dozens of cats in every window
The potent stench of weed lingering in the air around the property
Random people wandering in and out
Boarded up windows
Unkept gardens

You get the picture…

If you spot anything that concerns you, visit a few of the neighbours for the inside story. Pay close attention to tales of all-night parties, drug dealing, and other anti-social behaviour.

Check Potential Tenant’s Social Media Accounts

Social media is a goldmine when referencing tenants. Some tenants are smart enough to lock down their social media accounts, which is annoying, but many are like an open book. Search for a prospective tenant on Facebook, Twitter, and Instagram. Look through their feeds for any dubious content.

We shouldn’t make snap judgements based on what we see on social media. After all, people usually post a heavily edited snapshot of their life, which is often a far cry from a much more mundane reality.

Pictures of wild parties, piles of cash, drug paraphernalia, and anything else associated with antisocial behaviour are good reasons not to take on the tenant.

In addition, if they have stated they don’t own any pets, make sure their feed isn’t full of images of their dogs and cats.

This concludes our guide to tenant referencing. In all cases, the more checks you carry out, the better. No landlord ever regretted going the extra mile when referencing a potential tenant.

What checks do you carry out when referencing tenants? Have you turned down prospective tenants based on social media content? Let us know. You can get in touch via Facebook or Twitter.