The Complete Guide To Tenant Referencing For Landlords

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Landlords can never predict how renting a home will go – which makes tenant referencing an important key task.

Adequate referencing won’t stop problems arising but hopefully minimises the risk of moving in a tenant who has had issues paying the rent or looking after a rented home before.

The Tenant Fees Act bans charging tenants for references, so the cost of checks has switched to landlords with many questioning the time and value of carrying out the inquiries. But failing to take tenant references can be a false economy.

Tenant referencing includes Right to Rent checks, which are a legal requirement for all landlords letting in England.

Landlords with rent guarantee cover will also have to show their insurer that adequate references were made before the tenant moved in if they want to make a successful claim against the policy.

This guide includes 

  1. Why tenant referencing is important for landlords
  2. How to reference a tenant
    1. Pre-screening
  3. The tenant referencing checklist – and the questions to answer
  4. Guarantor
  5. Keeping tenant reference records
  6. Tenant Fees Act and charging for reference checks 
  7. Rules on returning the tenants holding deposit 

1. Why is tenant referencing important for landlords?

Taking tenant references is an effective way to screen tenants who may have a chequered rental history or who cannot afford to pay the rent on a buy to let home. Millions of tenants live in private rented homes without a problem, but a small number of rogue tenants set a bad example.

Tenant references aim to confirm several points:

  • To identify the tenant
  • Affordability check to make sure they can pay the rent
  • Any past renting issues, like falling into arrears or failing to look after a home
  • The tenant’s Right to Rent a home in England
  • As evidence to support a rent guarantee insurance claim

2. How to reference a tenant

Checking references takes some time and comes with a cost.

A property professional will probably complete the task in two to three days, but a private landlord with a day job can expect to take longer.

Property Professionals are likely to charge between for referencing each tenant plus fees of around for credit checks and access to the Land Registry to confirm a guarantor or former landlord’s identity if needed.

Under the Tenant Fees Act, charging the tenant these costs is illegal. Similar laws ban charging tenants’ upfront fees in Wales and Scotland

Landlords can choose to dispense with referencing, ask a property professional to do the job or take the job on themselves.

2.1. Pre-screening

Pre-screening is a good way to whittle down a list of potential tenants to a shortlist of possibles.

A suitable application for accommodation should be used. We often say on training courses that in our view, a good application form is just as important (if not more) than a tenancy agreement! Luxury Hub provides an online application for your prospective tenants to complete.

Questions should include asking about income and work if the tenant has pets and any adverse credit.

Simple pre-screening should weed out unlikely candidates from the start and save landlords time and money on referencing.

3. The tenant referencing checklist – and the questions to answer

Tenant referencing is a process which landlords should follow for every tenant.

Here’s a list of the points to keep in mind:

Right to Rent (England) – It is a legal requirement to carry out Right to Rent checks on all occupiers aged 18 or over. This is done to ensure the tenant is legally allowed to rent a residential property in England. If they fail the Right to Rent check, you can not legally rent the property to that individual. Find out more on the Government website.

Credit check – You must first ask the prospective tenant’s permission to carry out a credit check. If refused, this puts the tenant at a high risk of falling into rent arrears so you may wish to seek out a guarantor or request more rent in advance. A credit check will confirm the tenant’s credit history, highlight County Court Judgements (CCJs), a bankruptcy or insolvency. Technically they do no credit checks for a prospective tenant because no credit is being provided. Often a different name will be used such as “Tenancy References” but the outcome is basically similar.  Luxury Hub advises the Landlord if the tenancy is suitable, then provides the Landlord with a Tenancy Reference report.

Most rent guarantee insurers will want to see every tenant is credit checked and passes the affordability check before the tenancy starts to support a successful claim under rent guarantee cover during the tenancy. They will often require you to use their own referencing so you must check their terms carefully.

What to look for:  A clean credit history, which means no court judgments for debt or regular late payments that show the tenant has trouble paying regular bills on time. In addition, it’s important to have found them on the report (for example connected addresses are shown). A person who has not been found could be even worse as it could indicate they’ve been given false information.

Bank statements – you may ask for copies of bank statements for the past three months if you wish. Check start and finishing balances match so no pages are missed.

What to look for: Bank statements will show when and how much the tenant is paid, how they spend their cash and if they are living within their means.

References – Request the details of your tenant’s previous landlord so you ask them how they conducted themselves as a tenant. This is a great way to establish whether there were any major issues with their previous tenancy such as rent arrears or damage. 

Employer references – Property professionals prefer to see a recent payslip because often employers don’t reply to requests. Otherwise, insist on responses on company letter-headed notepaper and follow them up by calling the person who signed to check the comments. You can also request a reference from their employer to confirm the income and contract dates. Good references will go a long way to assuring that the right tenant has been chosen.

What to look for:  A steady employment record and consistent income

Affordability check – once you have confirmed the tenant’s regular income, carry out an affordability check. The check means establishing the tenant or guarantor can cover the rent from their income. The Guild report automatically displays a minimum recommended income.

What to look for: Affordability is assessed with income multipliers – for example, some services suggest 2.5 times salary for tenants and 3x for guarantors.

So, a tenant paying £750 a month rent needs an annual salary of at least £22,500 to afford the payment, while a guarantor needs £27,000.

Proof of identity – a passport is ideal because it can also be used for the Right to Rent checks (see later). A driving licence is also a good way to check ID – you get a photo and can confirm an address at the same time.

If the tenants do not have a photo ID, you need a good explanation of why and decide if your other checks are adequate to confirm identity (also this could cause Right to Rent issues).

What to look for: Confirmation the tenant is who they say they are.

Proof of address – ask for utility bills or council tax statements that are no older than three months. Where possible, ask for originals that cannot be tampered with rather than scans.

What to look for: The same name and address on each document, including the driving licence.

Landlord/Letting agent reference – write to a previous landlord to confirm the rent was paid on time and that any rented home has been well looked after. Don’t expect to receive anything other than a bland response. Be very cautious if checking a current landlord. If they are trying to evict the tenant, they will give you a good reference just to get rid of them!

What to look for Confirmation that the tenant pays the rent on time and in full while looking after the rented property

Right to Rent – At the start of a tenancy, all tenants aged 18 or over must show they have the right to rent a home in England.

What to look for: Right to Rent must be carried out by law within the 28 days leading up to the start of a tenancy. The government publishes detailed guidance about the check online. We also have information about the Right to Rent here.

4. Guarantor

If the tenant returns a poor reference, you could utilise a guarantor instead. A guarantor is someone who will take responsibility for the tenant’s obligations if the tenant is unable to fulfil them, including the payment of rent. This is particularly common with student tenants.

Be sure to perform finance checks on the guarantor too, an employer reference and a credit check will help ensure that they will be a viable guarantor. You will need to highlight the guarantor’s responsibilities through a deed of guarantee or within the tenancy agreement. 

Good property professionals always recommend a guarantor for poor references and affordability. It’s a useful backup if something goes wrong during the tenancy. If everything goes well, the guarantor never needs to be spoken to.  A guarantor should be a home-owner although this is a preference, not a requirement. You can check home-ownership quickly and easily on the Land Registry

5. Keeping tenant reference records

Keep records to show adequate tenant references were taken out before they moved into a rented home.

Besides copies of all the paperwork listed above, you will need written permission from each tenant to carry out the reference checks.

The document bundle should be signed and dated by the tenant to confirm they handed over the relevant paperwork.

Keep the bundle for the duration of the tenancy – especially the credit and affordability checks if you have rent guarantee insurance.

6. Tenant Fees Act and charging for reference checks 

Tenants cannot be charged for any referencing checks following the introduction of the Tenant Fees Act. The legislation which came into effect for England in 2019, classes reference checks as a Prohibited Payment. In Wales, the Renting Homes (Fees etc.) (Wales) Act 2019 also prevents such fees from being charged to tenants. In Scotland, these charges are considered illegal premiums so you will need to cover the cost of any referencing they wish to undertake.

7. Rules on returning the tenants holding deposit 

If you decide not to rent to a prospective tenant based on their references, a holding deposit (if one was taken) must be returned to the tenant within seven days of your decision. You may only retain the holding deposit if the tenant: 

  1. Failed the Right to Rent check
  2. Intentionally provided false or misleading information 

If you take this course of action, you must write to the tenant within seven days and explain why you are keeping the holding deposit. You may also retain the holding deposit if they change their mind about renting the property but must still write to them. Failure to do so will result in the holding deposit being returned regardless of failed checks.  

When is it illegal to refuse a tenancy?  It is the landlord’s decision whether to accept a tenant and referencing serves as a means to make an informed decision. However, you cannot refuse a tenancy if your reasons could be classed as discrimination. The following characteristics would be considered unlawful discrimination:

  1. Age of the tenant
  2. Gender or sexuality
  3. Marital status
  4. Pregnancy or a woman with children
  5. Religious beliefs
  6. Race/ethnicity
  7. A disability or health issue

Letting with Luxury Hub

At Luxury Hub, we can help you find the perfect tenant, manage your property and achieve the highest rentals, with the best service, reasonable prices, and expert local knowledge. We’re up to date on all the latest legislation, too. See our other articles and downloads on our website.

If you have questions about managing a tenant or property, or need to find your next buy to let property, get in touch today. If we can’t help, let us point you in the right direction.