Referencing – Why bother?

Referencing – Why bother?

I hear this so often from landlords, as there seems to be little understanding of the huge relevance references have in helping them choose the right tenant. Coupled with this view, is the statement that “references are not worth the paper they`re written on”, which is equally off putting. I would argue that no response for a reference tells you a lot more than a woolly answer. If a proper selection of references are taken then the true character and track record of your prospective tenants becomes visible.

There are two ways of taking them – either personally within house or by outsourcing to a reference company. When looking at reference companies, there are a vast variety offering these services. Be sure you know what you require, as your choice can either be by cost – these vary widely, or by the type of report offered. It is worth noting that you do pay for what you get.

Be mindful that all of these companies are backed by insurance companies so their reports will often be limited in depth of information, expecting you to take out legal and rent insurance to cover your costs in the event of a rental default. Alternatively, some reports can be very full, but in turn they tend to be very strict on the income multiples which can result in a greater number of failures of seemingly good tenants or the request for a guarantor. This can prove troublesome and costly given the tenants don`t pay these charges; doubly so in the current high cost of living with rents so high, relative to the average incomes.

What types of references do you need to take? The important ones are:

Landlord – It is vital to have an understanding of your tenants` previous rental period or periods if they have moved regularly. Have they paid their rent on time and in full with no defaults. How have they looked after the property and in what condition was it returned to the landlord. What was the attitude of the tenants towards their landlord – was it a good one or were there issues? If you are at all unsure keep digging with former landlords to get a complete picture, as often a current landlord who has troublesome tenants will want to get them moved on so might not tell the full truth.

Employer – Another vital one, as you need to know that your tenants are in meaningful employment. The key is to know how long they have been in the job, and if it`s a short term period are they on a probationary period? A full time contract is ideal and to know from the employer if any changes to this are expected. Be aware of taking any mobile numbers for an employer as this can be a warning sign of a fiddle, given that anyone can answer and pretend to be their boss! You need a landline number and business address that you can validate either on Google or at Companies House. Their salary is vital, because it could be a full monthly amount or split between a basic and commission, which indicates that the monthly amount will vary each time. If they have only recently taken the job it is essential to go back to the previous employer and find out how long they worked there, their reliability and most importantly why they left.

On line – We live in an IT world and looking people up on Facebook can give a very revealing aspect of their character that they perhaps were not showing. It certainly gives a more rounded view of them as tenants for your property.

Credit check – This is very important, as it shows their credit history and if they have any bad debts or worse a CCJ (County Court Judgement) or IVA (Insolvency Voluntary Agreement). If they have, you need to know how much, if there is only one or are there more lurking that have not been disclosed. It has to be said that many relate to unpaid utility bills or from a messy separation. Both of these do not necessarily mark them out as bad tenants, as often they are issued without the tenants even knowing about them. They do however, give you a good reason to investigate, because some tenants may have ones that were for overspending or worse and these could also be repeated on you, in your property. The important point is to know about them and be able to discuss them with your prospective tenants as they may or may not affect your judgement as to their suitability for your property.  You will need the tenants to sign for consent for this check to be taken.

Pets – The government is keen on landlords letting to prospective tenants with pets. At the moment it is up to each landlord to decide if he/she will accept a pet. There are many exceptional tenants who have a pet and in a lot of cases, the pet is part of the “family”; meaning by not accepting a pet you could miss a very good tenant. The question I think, that is much more appropriate, is the suitability of the property to the type of pet – a caged hamster will have a very different set of needs to a cat or dog. A house with a garden will be ideal for a cat or dog which needs outside space, whereas a flat in a block might be neither suitable nor practical. If you`re uncertain, you can request a pet reference and, if local, even ask to visit their current property to check the condition and see the animal first hand.

Do bear in mind, that currently, you cannot insist that a tenant takes out pet insurance as this would be banned fee under the Tenants Fee Act. It has been proposed that the Act could be amended by the Renters Reform Bill to allow a specific pet insurance payment by the tenant. We will discuss pets again in more detail in another article.

Character – Some people like a character reference, which can give a further indication of their qualities and values, but beware these can very easily be abused, particularly if using mobile numbers. It is better to get a reference in writing with a phone number that you can check the authenticity of it and speak to the referee.

Bank Reference – “Back in the day”, these were often taken to give a professional financial overview of whether the prospective tenants could afford the rent being asked. As time has gone on the reference has lost it`s real purpose as the reply normally will just state: “they should be good for the purpose of your enquiry”, which has limited use and tells us little! Taking this reference will often incur a charge so a Credit Check is much more useful.

Additional requests – It is a sensible plan to make sure you have a National Insurance number as this will allow you to chase defaulting tenants up if they suddenly vacate the property without giving notice. Similarly, the Next of kin, will give you another means of contact if the tenants are refusing to make contact with you and a person to check on if you think they have left, without letting you know. A guarantor can be useful as a back up if you are uncertain about your tenants` finances and ability to pay – Particularly important in today`s market with rents so high.

When taking this amount of information from a tenant, do remember to give them a Privacy Notice to sign which should clearly explain the use of the personal data collected under the General Data Protection Regulations Act 2018.

Without doubt, the most important part of any referencing is actually meeting them face to face at the property and getting a feel for them; depending upon your experience as a landlord, your “gut reaction” can be worth it`s weight in gold and first impressions should not be ignored!