The cost of checking
Troubled times are looming as the cost of living crisis bites the PRS hard. Tenant credit checks have never been more vital, says Richard Reed.
But Halstead is adamant that you get what you pay for. “The average rent is now £1,000 a month and people are arguing over a fiver? You couldn’t make it up,” he says forcefully.
He questions how companies are able to offer free referencing when it costs money to buy the data, and to build and operate a tech platform to provide that service. One reason, he claims, is that they don’t always offer full commission on cross sales.
“We provide a referencing service that isn’t entirely tech based because you need people to be able to spot the fraudsters, and then we pay maximum commissions on every cross sale. The myth of free referencing needs dealing with, because it is complete and utter nonsense.
“It’s not possible to fully automate tenant referencing. If what they are saying is true, I’ll give them a million references next week if they will do it for free.”
Impending storm
Halstead predicts an impending storm in the market as the ‘JAMs’ – just about making do – are overwhelmed by a tidal wave of rising prices. “The most dangerous man in the world is the man with nothing to lose,” he warns. “If you just cannot pay your bills and you’ve got a family, what the heck are you going to do? We are talking about people on £25,000 a year trying to bring up a family.
“Rents are at historic highs. People have never paid more for petrol or electricity. It’s a potential nightmare. So the quality of the reference that supports that tenancy is obviously important – and protecting that tenancy with a rent guarantee has never been more important. I personally find it very, very worrying indeed.”
It’s not possible to fully automate tenant referencing. If what they are saying is true, I’ll give them a million references next week if they will do it for free. Andy Halstead CEO, Barbon Group.
He claims moving a tenant into a property based purely on an electronic check is risky. “They may well have just been keeping their head above water, but if the trend is that the use of credit is significantly increasingly and that the amount of credit repayments is dropping in relation to what they owe, we can look at that and say, ‘This person looks all right but they are only a few weeks away from disaster’. It’s very difficult to do that with systems – you have to have people analysing that.”
Heidi Shackell, CEO of The Lettings Hub, agrees with Halstead that referencing shouldn’t be seen by agents as a price-driven commodity. “Even when paying for referencing, it’s one of the cheapest elements of the pre-tenancy process but delivers the biggest value by managing the biggest risk,” she emphasises.
“Referencing for The Lettings Hub involves checks on nearly 200 data points on every applicant. And the checks required are constantly being updated as it becomes more complex to combat increasingly sophisticated tenancy fraud.
Even when paying for referencing, it’s one of the cheapest elements of the pre-tenancy process, but delivers the biggest value by managing the biggest risk. Heidi Shackell CEO, The Lettings Hub.
“Tech has played an important role in the evolution of tenant referencing. But there are so many nuances and complex applicant circumstances, there’s no substitute for having an experienced team to provide human oversight and intervention where technology cannot replicate a ‘common-sense’ approach, especially with high-risk applicants.”
Property passport
All the referencing services provided by The Lettings Hub are integrated into an automated, web-based tenancy platform called BOX, which can handle everything from tenancy agreement creation and e-signing to rent protection policies and utility management.
The Lettings Hub also offers a Property Passport for tenants – and has seen demand grow six-fold in the past 12 months.
“It’s not surprising considering demand for rental properties is the highest it’s ever been, with each lettings branch having an average of 28 tenants on their books per available rental property,” says Shackell.
“Passport references are a win-win for both the letting agent and the tenant; they allow the agent to pre-vet applicants for free and early on so they know, even before a viewing, whether a tenant will be suitable for the property.”
Unique checks
Paul Munday, founder and CEO of RentProfile, would challenge the view that tech can’t provide most of the answers. However, he charges £12 for what he believes is a unique service. He says there is a misconception in the market that referencing is a commodity, and that all reports and providers are the same.
We five times faster, we run twice as many checks, and there is a 20 per cent uplift in approvals using our product compared with traditional referencing firms. Paul Munday Founder &CEO, RentProfile.
“We developed our referencing from the ground up,” he states. “We looked at a lot of those existing products and found areas where they were quite weak. We are five times faster, we run twice as many checks, and there is a 20 per cent uplift in approvals using our product compared with traditional referencing firms.
“We run a lot of unique checks on a tenant and we capture a lot more information. There is one per cent of people just misrepresenting and we cut that out, and we do that because of the nature of how we run checks on applicants.”
RentProfile does not rely too heavily on a score from a credit referencing agency as he says some perfectly good candidates fall through the cracks. “With some companies, if you haven’t been self-employed for two years you are deemed to fail,” he points out.
“One of our clients told me the previous company they used failed someone who was a contractor at Google and they couldn’t understand why – and it was because of these very rigid rules, and not going the extra mile to run additional checks.”
While RentProfile does sometimes use Open Banking to help de-risk an applicant, it is not a default check – Munday says it is not “silver bullet” and should not be relied on in isolation.
Troubled times are looming. It has never been so important to ensure tenant references are accurate, up to date and thorough.
Most of RentProfile’s clients have migrated to the full Onboarding package at £18 per tenant. “It takes what is a cumbersome process – setting up tenancies, everything from issuing terms, holding deposits, referencing criteria, right-to-rent checks, issuing the tenancy agreement, registering deposits – and automates that process,” explains Munday. “We are able to take a one- to two-week process and get it down to one to two hours.”
RentProfile also offers Right-to-Rent checks for £5 – relieving agents of having to wade through government advice that runs to 86 pages and is complex to navigate.
‘People understand us’
Over at Vouch, which was founded by a letting agent and is now part of Goodlord, Director Simon Tillyer contends that you can offer a good reference for £5 if you have the right technology in place. “If you have an old system that is people-heavy with call centres, and no instant data, you definitely can’t do it for £5; if you have got those things in place you definitely can, because tech improves efficiency, and efficiency improves costs,” he explains.
We built an instant application so that by the time the tenant has told it a few bits of information, it will supply an instant snapshot of the tenant to the agent. Simon Tillyer Director, Vouch & Goodlord.
He admits it’s a “very strong price point that got us through the door”, but says that will only get you so far. “Now that people have used our platform, they actually like the product and the service they receive. People understand us – they know we are letting agents, and most of our staff are letting agents. It’s quick and easy.”
A prospective tenant is emailed a link that takes them straight to the application form, and all the necessary steps are automated, including credit checks, employer referencing, affordability calculations and Right-to-Rent checks – but the agent always has the final say.
Agents can also earn commission of up to £300 if tenants sign up for utilities, broadband and insurance.
However, Vouch will be launching a full-service offering called Core-Plus for £10 in July. And while Tillyer does not believe tenant passports will catch on, Vouch is also about to launch an ‘Instant’ option, which pre-qualifies prospective tenants.
“Properties are in such high demand because there is no stock on the market,” he notes. “What agents want to do is to pre-check people. So we built an instant application so that by the time the tenant has told it a few bits of information, it will supply an instant snapshot of the tenant to the agent.”
‘Be wary of Open Banking’
At Diligent, managing director Graham Sandley is one of the pioneers of a tenant referencing service, having founded MARAS, one of the largest referencing companies in the UK back in the 1990s, selling it in 2007.
Sandley underlines that Diligent offers a personalised service and is not focused on point-scores. Like Munday, he is also sceptical about an over-reliance on Open Banking, which is only used as an additional tool if necessary.
You are always trying to make a future projection about the client and if you are just relying on a few bank statements it isn’t going to work. Graham Sandley MD, Diligent.
“Open banking is being used by the majority of companies as the method of validating the income and credentials of the prospective tenant. In my view this is extremely dangerous,” he warns. “Instead of taking up references and checking the information, they are just relying on the equivalent of a bank statement – it shows money coming in and money going out. You don’t know if it’s showing employment or a contract position or a temporary position, or if the person has resigned, you don’t know if it includes bonuses.
“You are always trying to make a future projection about the client and if you are just relying on a few bank statements it isn’t going to work.” He adds, “There are no short cuts in doing a good job… my old company operated in exactly the same way – sometimes it becomes a mini investigation and you have to have the investigative talents to be able to drill down and trace the missing information. Our job is to get to the truth.”
Diligent’s referencing service costs £16.50, with the first guarantor free of charge, while legal protection insurance is a very reasonable £99.95.
“There is a correlation between the cost of rent guarantee and the standard of referencing,” observes Sandley. “If you want to get to the truth of how good the referencing company is, ask the price of the rent guarantee.” He agrees with Halstead that, at the end of the day, you get what you pay for – “£16.50 to check somebody out thoroughly so you have confidence in relation to how that tenant is going to perform. One, you get your money, two, you don’t have to chase money and possibly go to court, and more importantly, you don’t potentially lose the landlord.”
Open Banking used well
Good2Rent is a relative newcomer to the referencing arena, but founder and CEO Anthony Quirk has been in estate agency for more than 20 years. He also founded the valuation firm, MyVal.
Quirk is a firm believer that Open Banking can be relied upon to most of the donkeywork in assessing a tenant’s ability to pay, but Good2Rent does ask for 12 months’ statements. It also partners with Yoti to carry out ID checks, and its Instant package, including employment validation, credit check and proof of residency, is just £5. The comprehensive package, at £10, adds landlord and employer references.
We will introduce them to 15 agents and email the agents to say they are looking for a property and we have already referenced them – that’s free to the tenant and agent. Anthony Quirk CEO, Good2Rent.
Good2Rent also offers a Rent Match service for agents, tied into its Rental Passport for tenants. “We’ll ask a load of questions like where are you looking, what type of property, price ranges, we’ll then do a reference which includes a credit check as standard, and we will introduce them to 15 agents and email the agents to say they are looking for a property in your area and we have already referenced them,” explains Quirk. “That’s all free for the agent and the tenant – we only charge £10 if they download the reference.”
A VIP Viewer service is also in the works, which will allow Good2Rent to handle portal leads for agents – apart from a £50 set-up fee, there will be no additional costs. “If we get 15 enquiries on one property through a portal lead, five or six may go through VIP Viewer service – we’ll prioritise them, contact them and send them back to the agent.”
Troubled times are looming. It has never been so important to ensure tenant references are accurate and thorough.
I find it amusing that the businesses that started by offering Open Banking References are adopting more and more practises of traditional referencing companies, are offering “even better” turnaround times and having to sell more and more data off the back of it to pay for it.
A Tenant Reference is cheap at £16.50 and no one has yet come up with a solution that can match what a well trained Referencing Administrator can achieve.
Use Open Banking if you must just don’t rely it for accurate referencing !