Tenant referencing is currently a topic of hot debate, following the Queen’s Speech, written for her by the Government. The speech included reference to The Immigration Bill, which, she said, would aim to “ensure that this country attracts people who will contribute and deter those who will not”.
Good news, but as part of the Government’s aim to clampdown on foreign criminals and those in the UK illegally (as well as win back Tory voters who have defected to UKIP), both private and social landlords will be required by law to check the immigration status of prospective tenants.
“For a Government committed to reducing the burden of regulation it is ironic that they are now seeking to impose a significant regulatory burden on landlords making them scapegoats for the UK Border Agency’s failings,” said Richard Jones, Policy Director of the Residential Landlords Association (RLA).
Checking an immigration status is yet another level of bureaucracy dumped on the private sector.” Guy Jenkinson, Bidwells
The announcement has been described as “yet another level of bureaucracy that is being dumped on the private sector,” by Guy Jenkinson, Head of New Homes for Bidwells, and since the Queen’s Speech there has been a suggestion that the requirement may be limited to certain areas; but whether you do or don’t agree with the proposals, it does remind us that tenant referencing is absolutely crucial in order to help find high quality tenants.
Richard Lambert, CEO of the National Landlords Association (NLA), said, “Every landlord should thoroughly reference a tenant prior to offering a tenancy; this is standard best practice which safeguards the landlord’s business. Tenant checks should include not only an identity check, as suggested, but also whether the tenant has any County Court Judgments, possible aliases and include
references from their employer and a previous landlord.”
The BTL landlord’s risk
The UK economy may still be flirting with recession, but the buy-to-let market is going from strength to strength.
With the price of gold plummeting and savings rates failing to keep pace with inflation, more people are looking to buy-to-let for higher medium to long term returns. No surprise, therefore, that the latest Council of Mortgage Lenders’ (CML) data shows that the buy-to-let sector now accounts for a record portion of the total number of mortgage loans in the UK, standing at 13.4 per cent – 1.46 million – of all outstanding mortgages at the end of March, up from 12.9 per cent a year earlier.
“Poor savings rates have sparked interest in the buy-to-let market as investors look to capitalise on growing tenant demand and strong long-term returns,” said Brian Murphy, Head of lending at Mortgage Advice Bureau.
And while BTL loans have been seen as riskier than owner occupier loans, the number of repossessions was 17 per cent lower in the first quarter of 2013, compared with the same time last year, is a clear sign of an ongoing responsible approach to mortgage lending, according to Peter Williams, Executive Director of the Intermediary Mortgage Lenders Association (IMLA).
He commented, “With both repossessions and arrears having stabilised in recent months, the trend bodes well for the future given the anticipated growth in the mortgage market.”
But a sudden rise in interest rates or further decline in the state of the economy could see many property investors come under greater pressure, especially if there is a rise in the volume of tenants who are unable to meet their rent obligations each month.
Consequently, it is imperative for buy-to-let investors to do their homework, seek advice from the experts and properly reference their tenants by appointing the services of a reputable specialist referencing firm.
The levels of tenancy referencing vary, with the most basic referencing check offering simple information, such as the prospective tenant’s credit rating and information on any adverse credit history, including County Court Judgements, Bankruptcy Orders and Voluntary Arrangement (debts owed to a third party under a special agreement).
By not undertaking a robust check you are exposing your landlord to increased risk.” Michael, Portman LetRisks
However, despite the temptation to go for the cheaper ‘basic’ option, Michael Portman, Managing Director of LetRisks, advises landlords and agents to consider a fully comprehensive service, in order to minimise their exposure to risk. This service also verifies the applicant’s employment history, establishes if the applicant can afford to pay the rent, and will flag up a weak reference from the previous landlord.
Portman commented, “By not undertaking a more robust check you are exposing the landlord to an increased risk of accepting a bad tenant.”
Depending on the level of service that the agent or landlord opts for, the monthly cost of a tenant referencing service varies from about £7 to £60 plus VAT.
We believe that referencing is money well spent; it could result in savings of hundreds or thousands of pounds.” Natasha Hart, Endsleigh
“We believe this is money well-spent when it could result in a saving of hundreds (or even thousands) of pounds,” said Natasha Hart, Regional Manager at Endsleigh Insurance Services.
With discounts usually available for letting agents, especially for those firms offering up multiple properties, there is an opportunity for letting and managing agents to make a nominal profit, while keeping the costs down for landlords. Many agents could also, or may already, charge the landlord or tenant an administration fee for their time in undertaking references, as well as a referral fee to the referencing firm, for generating the business in the first place; a win-win scenario!
But first and foremost, the referencing process – and the service provided by reputable specialist referencing firms, is there to help the landlord and agent make an informed decision as to whether to let a property to a particular applicant, by ensuring that all prospective tenants are properly vetted.
“Referencing from a reputable company is the most important tool in an agent’s assessment of a tenant,” said Brandon Hibben, Head of Property Management at the Guild of Professional Estate Agents. “Not only does it help to present the best tenants to clients, it also minimises future issues that could potentially have financial and legal consequences.”
Going further than a reference
Although the landlord or agent does need to undertake references to establish that the applicant can demonstrate credit worthiness at the start of the tenancy, this cannot take account of a change in the tenant’s circumstances that could impact on their ability to pay the rent.
“The reference offers a snapshot, but the applicant’s circumstances could change, particularly in the current economic climate,” said Richard Berridge, Managing Director of Just Landlords.
Fortunately, protection against rent arrears is available, covering landlords in the event that their tenants fail to pay the rent.
Berridge added, “With cover costing from around £8 per month, rent guarantee insurance is inexpensive and tax deductible. What’s more, as an agent, it is in your interest for a landlord to take out this type of insurance, not only to ensure that they receive their rent, but also to protect your commission.”
But the two elements are entwined; any landlord wishing to take out insurance cover for non-payment of rent, will find that it is a general condition of the insurance policy that the landlord obtains acceptable written references, often from a specialist tenant referencing company, before the start of the tenancy.
Meet the professionals
Endsleigh Insurance Services
Endsleigh provides a tenant referencing
service, also powered by Experian. By using
their extensive database, the company claims
that its tenant referencing service is one of
the most powerful in the industry, providing
both instant online tenant checks as well as
more comprehensive profiles.
FFC Paragon offers a variety of different
options and ways to reference prospective
tenants, from instant reports to extensive
tenant referencing checks which are more
depth and comprehensive. The firm’s
sophisticated online system allows people to
submit applications, track progress, download
reports, access invoices and manage their
From an applicant’s banking details to renting
history, HomeLet promises to deliver a fast,
accurate and intelligent tenant referencing
service, providing landlords with the
confidence that they need before deciding
on whether to approve a new tenant.
Landlord Assist’s efficient and thorough
tenant referencing service, which is normally
undertaken by trained property professionals
within one day, includes various checks,
such as residential status, number of bank
accounts held, electoral roll check, length of
residence, court and insolvency information,
number of utilities accounts, county court
judgments, among others.
Legal 4 Landlords
Among some of the main referencing
providers, Legal 4 Landlords claim that their
tenant referencing system is more advanced
and more efficient than any other tenant
referencing system available. The company’s
fully online system offers the ability to track,
manage, interact with all reports remotely,
with the references process taking an average
of three days to complete.
LetRisks tenant verification has been
developed in conjunction with Experian
using the latest technology and analytical
techniques to obtain and match data from the
most extensive set of records available in the
UK. As part of the process, the firm can
uncover hidden facts about potential tenants.
Using the latest technology, and an in-depth
knowledge of the competitive lettings
market Veri-Check provide online tenancy
referencing reports, in order to verify tenant
applications to meet tailored criteria.
- Bidwells www.bidwells.co.uk
- Council of Mortgage Lenders www.cml.org.uk
- Endsleigh Insurance Services www.endsleigh.co.uk
- FCC Paragon www.fccparagon.com
- Guild of Professional Estate Agents www.guildproperty.co.uk
- Homelet www.homelet.co.uk
- Intermediary Mortgage Lenders Association www.imla.org.uk
- Just Landlords www.justlandlords.co.uk
- Landlord Assist www.landlordassist.co.uk
- LetRisks www.letrisks.com
- Let Alliance www.letalliance.co.uk
- National Landlords Association www.landlords.org.uk
- Residential Landlords Association www.rla.org.uk
- Veri-check www.veri-check.co.uk