TENANT REFERENCING – A VITAL PART OF THE LETTINGS PROCESS

Published 16 July 2018

Credit score1For most landlords, letting a property involves allowing complete strangers access to their most valuable asset.  Put like that it sounds scary – which is why tenant referencing is such an important part of the letting process.

Traditionally the majority of this cost has been met by the prospective tenant, but as from next year that will become the responsibility of the landlord.  Inevitably there will be some who will consider whether this is something worth forking out for; the answer is a resounding ‘yes’.

Verifying that tenants are who they say they are, that they can afford to pay the rent, and that they are of good character, before handing over the keys, gives the landlord the best chance possible of not encountering problems further down the line. The ramifications of not completing thorough referencing could work out to be many times more expensive than the cost of referencing checks at the start of a tenancy.

Of course, even stringent checks can only ever be a snapshot of a prospective tenant at a single moment in time.  There are no guarantees that problems won’t occur; this is about minimising the risks.

Thorough tenant referencing involves a number of checks, including a credit check; assessing the affordability of the rent against the tenant’s income; verifying their employment status, salary and length of service (or accounts if they are self-employed); and talking to former landlords.

Doing this properly can involve a cost of £100 or more, which is in most cases currently met by the tenant, who has no choice in the matter.  However, once the responsibility for paying for referencing passes to landlords, some commentators believe there will be a fall in the proportion of tenants properly checked – a false economy given the cost of solving tenant problems once they are living in the property.

Interestingly the value of tenant referencing is best illustrated not in the reduced incidence of problems which occur when proper checks are done (although this is one useful metric); it is more immediately demonstrated by the very low failure rate of tenant checks. 

If prospective tenants know that a landlord will be checking their suitability before handing over the keys, the vast majority of problem tenants will simply not apply, so the landlord ends up with a self-selected better quality applicant to start with, just by insisting on referencing.

Most commentators believe that landlords will pass on the cost of tenant referencing in the form of higher rents anyway, but even for those who don’t do this, refusing referencing on the grounds of cost will be a false economy.  Landlords and letting agents will be able to take a holding fee from prospective tenants which they can retain if the referencing process shows up that a tenant has not been wholly truthful on their application – so it really is a win:win situation for landlords.

One final thought: we know that there is a ‘rogue landlords’ register to help tenants identify the minority who behave badly so that they can be avoided.  Given that the burden of referencing is now to fall on the landlord, should we be seeing a similar ‘rogue tenant’ register to help landlords identify prospective tenants who might cause a problem?

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