What is tenant referencing and why is it important?
This is the process of profiling a prospective tenant, so that any risks can be identified
Tenant referencing is the process of profiling a prospective tenant to find out if they will be able to pay the rent and are likely to look after a rental property.
It helps landlords and letting agents to make an informed decision on whether to allow the tenant to rent a property.
The tenant referencing process involves methodically gathering relevant information to build up a detailed profile of the prospective tenant, so that any risks can be identified.
When it comes to tenant referencing, you’re putting a jigsaw together, building up a picture of the prospective tenant’s renting history – whether they have defaulted on rent in the past or caused malicious damage to a property, whether they have had County Court Judgements against them and, most importantly, whether they can afford to pay the rent. No tenant should really be paying more than 30 per cent of their income on rent. Affordability is key.
Before handing over the keys to your rental property, it’s important to be confident that your tenant is who they say they are, and that they can be trusted to look after your property. Your rental property is likely to be your most valuable asset, and you’ll want to do all you can to protect it and maximise the potential of your investment.
A robust referencing process will also reassure a reliable, honest tenant that they are in good hands and dealing with a professional landlord or agent. Matching the right tenant to the right property is key to making sure that the tenant takes good care of the property and will be able to pay their rent on time.
Referencing can actually play a role in helping you decide how much rent to charge.
For example, you may choose to offer a lower rent to secure your perfect tenant.
It’s important for landlords to set their own parameters when it comes to rent – opting to charge rent at the lower end of the market rate for the property might mean you have more tenants to choose from and this may save you money in the long run. A higher rent might sound like a better option in the short term, but it can limit your choice of tenants and cost you in void periods further down the line. It’s important to bear this in mind and make sure that you pick the tenant, rather than letting the tenant pick you. Referencing is key to this.
In the event that a bad tenant slips through the net and causes malicious damage to your rental property, you’ll need to provide evidence that you carried out a robust tenant referencing process.
Our premier policy offers protection against malicious damage by tenants and their guests, as well as loss of rent resulting from the need to carry out repairs. But for a claim to be successful, you’ll need to provide evidence that you did all you could to prevent the damage from happening in the first place. “You’ll need to show that your tenant passed a full and robust reference check and that you carried out regular inspections.
Before getting started on a tenant reference check, it’s important to bear in mind that tenant referencing is a data gathering exercise and must therefore be carried out in compliance with GDPR (General Data Protection Regulation).
You can find more general information about GDPR compliance on GOV.UK and information specific to landlords on the NRLA website, Rent Smart Wales and GOV.SCOT.
