Why might a prospective tenant fail tenant referencing?
In this section we help you understand the results of the referencing check and interpret them correctly
Finding the right tenants for your property is the biggest factor in determining the success of a tenancy. And the referencing process is the best tool at your disposal for finding the right tenants.
But there are a number of reasons why a tenant might fail aspects of a referencing check which don’t necessarily mean that they won’t be a good tenant, so it’s important to understand the results of the referencing check and interpret them correctly.
If you feel that the would-be tenant might be a good fit for your property.
Here are a few examples of potential scenarios and what you can do about them.
Just because a tenant fails their credit rating, this doesn’t necessarily mean they won’t be able to pay the rent.
They could have received a low credit rating because they weren’t on the electoral register at a previous address, as being on the electoral register builds up your credit rating.
Or they may simply not have previously borrowed money or had a credit card in their name. By considering the credit score in the context of the wider reference, you should be able to make a decision about whether the low credit score is a red flag. For example, students or younger people may not yet have built up enough credit history yet to make good tenants.
Students are worth a special mention as it is likely that they won’t meet a number of the standard reference checks carried out as part of the referencing process. They move often, haven’t usually built up a credit history, and are unlikely to be earning more than 2.5 times the monthly rent.
What’s more, students can have a bad reputation when it comes to rent payments. But this reputation doesn’t necessarily align with reality and there are lots of benefits of renting to students. Most students provide their parents as guarantors, giving landlords an easy way to reclaim any late rent payments.
Rent payments may also be subsidised by student loads, making late rent payments less likely.
The employer’s reference is the key check to tell landlords whether a prospective tenant’s income meets the ‘affordability check’ – usually at least 2.5 times the rent. However, this doesn’t take account whether they are going to be receiving a contribution from parents or have savings.
As with student tenants, asking the prospective tenants to provide a guarantor and making sure you carry out reference checks on the guarantor in the same way you would a prospective tenant, is the solution here.
Proof of address is one of the most important aspects of referencing, as being able to prove an applicant’s current address is key to avoiding fraud. However, even in this scenario, there could be a valid reason why the tenant has no proof of address, so again, it needs to be considered in context.
Proof is usually in the form of named utility bills, a previous tenancy agreement or being on the electoral roll. However, often tenants aren’t responsible for paying bills, they may be registered on the electoral roll elsewhere, or they may be cohabiting with a partner and not named on the tenancy agreement. If the tenant has none of the usual forms of proof of address, ask them to get a letter from their bank to confirm their address.
Referencing provides you with a risk assessment, but ultimately it’s up to you to investigate why the tenant failed the referencing check, piece together the jigsaw to build up a full profile of the applicant, and decide whether the reason for not passing is significant enough not to let your property to the tenant.
It’s also a good idea to check with your insurance provider whether your insurance will be valid if you let to a tenant who failed the reference check. At Hamilton Fraser Total Landlord Insurance, no claims will be paid out in relation to the illegal manufacture, cultivation, harvest or processing of drugs if your tenant(s) have not passed a four point reference check.
As discussed, if your tenant fails a reference check but, having considered the wider context of their application, you feel they could still be a good fit for your property, asking them to provide a guarantor is a good option.
There has been an increase in landlords insisting on guarantors because of the impact of COVID-19 on tenants’ job security. But guarantors have always been common for tenancies involving tenants on Universal Credit, students, foreign nationals and young people moving out for the first time.
A guarantor is a landlord’s insurance policy against tenant default – someone who agrees to pay the rent if the tenant defaults. Guarantors are usually a parent or relative – they need to be over 21 years of age, have a good credit history and ideally be a home-owner themselves.
Guarantors should be referenced checked just as you would a prospective tenant and the guarantor’s agreement needs to be a legally binding document which has to be witnessed, in line with the tenancy agreement. Find out more about using a guarantor.
While applicants who don’t pass all the tenant referencing checks may turn out to be good tenants.
At the other extreme are the fraudsters and serial bad tenants who are increasingly targeting rental properties to turn them into cannabis farms or splitting them into bedsits and subletting them to dozens of tenants.
Expert in faking their way through the referencing process, from registering false businesses at Companies House to using a ‘front couple’ to visit a property and undergo referencing checks, in an attempt to lull the unsuspecting landlord or letting agent into a false sense of security. Only to disappear without a trace, to be replaced by the criminals.
Fraudsters tend to use rental properties advertised through social media, hoping that this way they can avoid formal checks, so using the services of a reputable letting agent is a lower risk option for landlords who are short on the time and experience needed to carry out a robust reference check.
Criminals, serial fraudsters and dishonest applicants will go to great lengths to portray themselves as the ideal tenant in order to find the perfect property. But there are some common red flags to look out for. These include:
Offering to pay several months’ rent in advance
Wanting to keep utility bills in the landlord’s name
Asking for complete privacy (no inspections)
Refusing to provide any piece of information requested during the referencing process
Haggling over the rent or deposit
Putting you under pressure and wanting to move in straight away (circumventing the referencing process)
Be mindful that if a prospective tenant is showing any of these red flags, you should proceed with caution and listen to your gut instinct.
Top tip: If in doubt, don’t go ahead with the tenancy
If a tenant does manage to get into your property under false pretences, they are committing referencing fraud, and that is a specific discretionary ground for possession. Under Covid rules the notice period has remained at two weeks rather than six months for most other grounds and you can serve a Section 8 eviction notice to evict a tenant.
We’ve seen an increase in referencing fraud at Landlord Action during the COVID-19 pandemic.Including cases where unscrupulous landlords have provided good tenant references for tenants, when in fact the tenant has been defaulting on the rent. In this way, they can pass the tenant on, move them out quicker and avoid lengthy notice periods, slow court proceedings, and loss of in some cases over a year’s rent.
Paul Shamplina highlights the increasing sophistication and frequency of rental fraud.Sometimes, landlords think they have taken all the necessary precautions but find themselves in a difficult situation. Technology has made it easier for people to falsify documents, which is why letting agents and referencing companies need to invest in even smarter technology to improve fraud detection. Landlords should ask questions, and take time to drill down into any information which does not appear to stack up.
