Tenant Referencing Guide For New Landlords

It’s important for new landlords to understand the need for tenant referencing. You need to check a prospective tenant’s suitability for renting a property, which involves verifying their identity and financial stability to protect your own investment and mitigate future risks. This blog will outline the steps you need to take as a new landlord for effective tenant referencing.

Table of Contents

What is Tenant Referencing?
Why Tenant Referencing is Essential
How To Do a Tenant Reference Check
What To Watch Out For When Tenant Referencing

What is Tenant Referencing?

Tenant referencing is something a landlord does to find out information about a prospective tenant. These checks can help to verify that a tenant is who they say they are, that they can afford to live in the property, and that they aren’t likely to cause any problems during their tenancy. Part of the landlord’s reference check is making sure that the tenant is legally allowed to rent a property in the UK, known as the Right To Rent check. Some landlords will do a basic tenancy reference involving ID checks and a credit check, whereas some will go further and ask for proof of employment or income, references from previous landlords, and more. How far you want to go is up to you, but you should at the very least do the Right To Rent check and a credit check. You can pay a tenant referencing agency to do this for you, which could save you some time, especially if you have multiple properties and may be dealing with tens or even hundreds of potential tenants.

Why Tenant Referencing is Essential

You need to find out who is going to be living in your property before you hand over the keys – you could end up with a tenant who can’t afford to pay rent on time, and at worst, you could find your property being used for criminal activities. Doing identity, background and credit checks will reduce the risk of your tenants going into rent arrears or damaging your property. Doing comprehensive tenant referencing can also help to reassure tenants that you are a reliable landlord who cares about their property and does things by the book.

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How To Do a Tenant Reference Check

The first thing you should do is have a chat with your new prospective tenant on the phone or in person. You should ask if they are employed, if they are a smoker, and if they have any pets. This way, you will know whether or not to proceed with their application if they are blatantly unsuitable for your property. Here are the next steps you can take when referencing a tenant:

Proof of Identity

You need to see a tenant’s ID before you can rent to them under the Right To Rent laws. This can be a passport, a driver’s licence, or another official form of ID. If they cannot provide this or are unwilling to show it to you, then you should reconsider renting to them.

Credit Checks

A credit check is a quick and inexpensive way of looking at a tenant’s credit history. You can see if they have ever defaulted on a loan, declared bankruptcy, or have any County Court Judgements. You will need their full name, address history, and date of birth to do a credit check – you will also need their permission. You can get a credit check from one of the UK’s three main credit reference agencies (CRAs): Experian, TransUnion, or Equifax. Some types of landlord insurance will specify that you need to carry out a credit check on all tenants for your insurance to be valid. Bear in mind that some tenants, especially students or recent graduates, may not have had the chance to build up a credit score. If a tenant is using a guarantor, you should run a credit check on them too.

Proof of Employment

A tenant can provide proof of employment to show that they are earning enough money to afford the rent – this could be in the form of a contract of employment, recent paychecks, or by contacting their employer directly.

Proof of Affordability

Having a job does not necessarily mean a tenant can afford rent. They may be bad at money management, have other financial commitments that take up a lot of their earnings, or not be a full-time contracted employee, so their monthly income can vary. This is why you should also ask to see some recent bank statements – if they end up in debt every month or have more outgoings than income, then consider if they will be able to actually afford to pay rent.

References from previous landlords

If the tenant has rented other properties before, you can ask their previous landlord for a reference. They will tell you if your prospective tenant has caused them problems or been a model tenant. You can also check on the Land Registry whether or not the person providing their reference is the owner of the property they used to live in. Bear in mind that not every tenant will be able to provide a landlord reference, as they may have only lived in the family home or within an owned property previously.

FAQ: Can I charge tenants for credit checks and other background checks?

No, you can’t charge for these things as per the Tenant Fees Act. You must fund the tenant referencing out of your own pocket – luckily, it is not that expensive. A credit check costs around £15, and the rest just takes a little time.

What To Watch Out For When Tenant Referencing

Some prospective tenants may fail some of the checks, e.g. students and recent graduates, people moving out of the family home for the first time, self-employed people and others who will make perfectly good tenants. However, there are some bad tenants out there who are very good at passing checks and giving the appearance of being an ideal tenant who go on to default on rent payments, damage your property or even use the property for illegal activities.

You should be wary of potential tenants who offer to pay several month’s rent in advance, especially in exchange for waiving references and other checks, wanting to keep all utility bills in the landlord’s name rather than their own, not providing the required information for credit checks, haggling over the deposit or rent amounts, wanting to move in right away before you can complete referencing, or anything else that makes you suspicious. If you have a gut feeling that something is wrong, then listen to your instincts and find someone else to rent to.

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