Vetting Tenants For Rental Property - Uk Landlords

I know an honest person when I see one. There’s no need to go to the trouble of getting professional tenant references.”

Well that maybe perfectly true. As a landlord of many years I‘ve normally been a pretty good judge of character and have had only a couple of problem tenants. Generally I’ve trusted my own judgement. However, when I have had difficulties, I am pretty sure that in hindsight that the financial difficulties experienced by the tenant would have been picked up by using a reference company to carryout proper financial checks. The results would have either put me off letting the property to them or at the very least warned me of the risk I was taking allowing me to take extra precautions.

Even, where I haven’t gone the whole hog and obtained financial checks, I have always insisted on an employer’s reference along with a previous landlord or mortgage company details. That way you can at least gauge a little bit of the tenant’s track record. In many ways it is not so much about the content of the reference. You generally assume these will be fine. Surely no tenant would be stupid enough to submit a damming one! Equally, if the tenant was hell bent on deception, they are not difficult to forge. It is more about establishing a dialogue. Testing them out, are they reliable? Do they get the references to you when they say they are going to? The bits of information you glean through the odd phone call help to build a picture of their character. By putting these bits of information together you should be able to build a profile that will enable you to decide whether you feel comfortable with them being your new tenants.

I would personally recommend that you consider taking a more formal approach; particularly if you are a novice landlord and where you are letting to higher risk tenants. This approach is the one adopted by a letting agent.

What does it involve? The referencing procedure consists of 4 basic checks: employment reference, landlord reference, credit reference and bank reference.

Employment reference

These check an applicant’s employment status. You should request information on the length and security of contract and their salary. If you want to speed up the process you could always phone or e-mail the referee. Some people feel that having an official piece of paper guarantees authenticity and security. Unfortunately, an accomplished ‘scammer’ is just as likely to have a stack of company letterheads that they can use to falsify their reference. A surprise e-mail or phone call can ‘upset’ their well polished ‘act’. Details on their salary are particularly useful as they can be used to carry out a quick appraisal of the tenant’s ability to pay the rent.

As a rough guide you can calculate the affordability of the rent in relation to their salary by multiplying the monthly rent by 30 to give the minimum salary that would support that level of rent. This calculation is used by reference companies and credit agencies during their vetting of potential tenants for landlords. For example a monthly rent of £1000 multiplied by 30 equals £30,000. If the applicant annual salary is £20,000, then you should start to question how they are going to afford this rent without sub-letting. Whilst the outcome of this shouldn’t be taken as gospel, it does give a useful guide.

Landlords reference

Where the applicant is currently living in rented accommodation it is important to obtain a reference from their landlord. I would suggest that you ask the following questions.

* How long has the applicant been a tenant of yours?

* What is / was the rent paid?

* Was the rent paid in full and on time each month?

* Were there any periods where the rent was in arrears?

* Is the rent currently in arrears?

* Has the applicant cared properly for the property and its’ contents

* Would you accept the applicant as a tenant again?

The landlords reference, given that many landlords are private individuals is one reference that can be easily falsified by the prospective tenant. All they need to do is to give a friend’s details instead. If you are suspicious or want to make very sure, phone the person up. You should be able to tell quickly if the details are genuine.

The other things about landlord references is that if a landlord has a bad tenant, there is a big incentive for them to give a misleading reference just to get rid of them. Given that as a prospective landlord; one of your primary concerns about a tenant is will they keep up to date with their rent. You should therefore request that the tenant produces several recent bank statements showing the payments of rent from their account. This also gives you a chance to see what state their finances are in.

On the same topic I would draw your attention to the dilemma faced by many letting agents in seeking references. I recently had a letter requesting a reference for a tenant of mine. The wording of this request was so vague that effectively it was all but meaningless. A letting agent on a ‘finders fee’ is concerned primarily with finding a tenant. They will therefore not always be looking too hard to find problems, again something to be aware when employing one.

Finally, there are an increasing number of prospective tenants who were previously home owners having elected to sell up & rent. In their situation a current landlord’s reference will not be possible. You could off course request a copy of an up to date mortgage statement or evidence of their last 6 months of mortgage payments as evidence that they were not behind with their mortgage payments. If they refuse, maybe they were trying to hide something.

Credit reference agency

These are agencies used by letting agents. They carry out checks on the prospective tenant’s credit worthiness. If you elect to employ a letting agent, these checks should be done as a matter of course. The agencies normally offer two levels of service. The first or basic package will simply check the tenants’ financial status.

This will include checks on the following:

* Electoral roll to verify current and previous address

* Check county court judgements, bankruptcy and any court based voluntary financial arrangements to ascertain any poor credit history

* An affordability check to ensure that the tenant is likely to afford the rent on their stated earnings

* Validate the bank address and sort code given by status to ensure it is legitimate

* Check submitted details against stored data on file

This type of financial check are available online for between £12-25 and once the enquiry form is submitted the results can be e-mailed back to you immediately. The second more comprehensive level of service will also include a landlord and present employer reference. As a result of this, the response from the agency will not be immediate and may take a couple of days. The charge for this service is between £25- 50.

So how useful are these checks?

This information should draw your attention to any overhanging debts. This may indicate a potential problem. It maybe of course that the tenant has an explanation for their debts and that they are now under control. More likely if there is a real problem, you won’t hear from them again. Some of the companies offer to produce a report of the tenant’s suitability. Try and not take all this information as gospel. It is part of the considerations that you should weigh up before coming to a view on their overall suitability.

Bank reference.

These references are likely to be the most difficult and time consuming to obtain. In order to get one you will first need written authorisation from your prospective tenant to allow the bank to respond. The bank will then charge you a fee for their services, which at best is likely to be very vague. Given all the effort and time involved and that the enquiry is only about a prospective tenant, my advice would be don’t bother.

The other references if carried out correctly should give adequate information on the prospective tenants’ character and financial status. If you really want to know what their bank account is like; it’s far easier to get them to bring a few bank statements for you to scrutinise. If they refuse maybe this indicates they have something to hide and that a full reference might be justified.

Referencing and tenant selection is one of the most important parts of the tenant selection process. If you get it wrong, then it can store up all sorts of problems for the future.