Perhaps the most fundamental building block in any residential let is the tenant referencing. Get that right, and everything else falls into place. Get it wrong, and the consequences could be dire. Once the domain of big, specialist firms with big teams of staff carrying out all the necessary checks, referencing has now moved firmly into the digital age, with Open Banking – the electronic sharing of banking information – a big game-changer.
Since most of the checking is now automated, it’s perhaps hardly surprising that proptech firms are getting in on the act – and the price is tumbling. While some are still charging double figures for a reference, at least one of the new players is offering basic checks free.
But is there a catch?
‘Smoke and mirrors’
Andy Halstead, Group CEO of Barbon Insurance Group, owner of HomeLet and Let Alliance, believes there is. Barbon operates the biggest referencing service in the UK, processing nearly a million references a year, and while he won’t disclose the price – which varies according to volume – it can be around £16.
Let Alliance has 350 staff dedicated to carrying out checks, although many are now automated. “There are smoke and mirrors everywhere – people promising to do it for free – but it’s having zero impact on our business,” he says.
There are smoke and mirrors everywhere – people promising to do it for free – but it’s having zero impact on our business. It’s a myth that it doesn’t require people – absolute nonsense. Andy Halstead, CEO Barbon Insurance Group.
“We’ve almost entirely digitalised the referencing process now, but it’s a myth that it doesn’t require people – absolute nonsense.”
Like many referencing firms, Let Alliance uses the Open Banking platform to check salaries, and utility bills from an existing tenancy – bank statements are too easily faked, says Halstead. But the checks go much deeper than that.
As an example, he says staff look for rent going into an applicant’s bank account. “That can easily be a sign they are renting to rent,” he explains. “You get people who rent properties then rent them out illegally on a nightly basis, or whatever, to criminals or people who ordinarily couldn’t afford those properties.”
Never been in debt? No credit then…
Although a credit check is one of the tools used, Halstead says it takes no account of a person’s assets – if you’ve never had any debt and never owed any money, it will hit your credit rating. “You could have £10,000 in the bank and a horrendous credit score,” he points out. Furthermore, he says a basic credit check only gives access to publicly available data – a full credit check is more involved and more expensive.
“We look at every single case – it’s automated, but you’ve still got to eyeball it and see if there’s anything that might spark an inquiry,” he adds.
“Let’s say a reference is costing £12, or £16 – that underpins on average a £10,000 a year in transactions. Are you really going to try to save a fiver?
“The other things these outfits do is they will do cross-sales and aim to make commission on cross-sales. There is no such thing as ‘free’, these companies have got to be earning money somehow. “What we do is we charge a principal rate for the reference, which is driven by volume. We pay the maximum commission rates on all cross-sales. We could be referencing free tomorrow if we stopped commission on cross-sales but that would cost agents millions.”
Tech driving down cost
The newest player in the referencing market, with a product that launches this month [March], is home set-up service Just Move In, which arranges everything from council tax to broadband for both renters and buyers.
Founder and CEO Ross Nichols believes technology will continue to drive down the cost of referencing in the years to come.
“We came to the market from a different perspective,” he says. “We started with a set-up service, which we launched to help customers move house and relieve them of that burden. We were continually asked by our clients if we had a referencing product because the service we gave to customers was different to everybody else’s.”
If you look at the products on the market a lot of them are very cheap and cheerful, and I do think you get what you pay for when it comes to referencing. Ross Nichols Founder and CEO, Just Move In.
He says traditional referencing firms employ large numbers of people to do work that can be automated. “That’s the reality – the tech has improved so much you can manage a lot of it automatically.”
However, he adds a note of caution. “If you look at the products on the market a lot of them are very cheap and cheerful, and I do think you get what you pay for when it comes to referencing.
‘Reassuringly more expensive’
A reference check with Just Move In costs £7. “It’s reassuringly more expensive than a product at £5 but it’s cheaper than a comprehensive reference from someone like Goodlord,” says Nichols. “If somebody wants a digital ID validation – to check a document such as a passport or driving licence – that’s an additional £3. “It’s really simple and it slots really nicely into the rest of our service. You’ve got the tenant referencing journey, which then leads into the home set-up service, and because that’s been our focus up until now, we can deliver that in a more seamless way than anybody else.”
Just Move In’s new referencing service includes a free pre-screening feature called Suitability Checker that allows an agent to compare potential applicants before they’ve gone through the referencing process. “So if you’ve got four or five potential applicants and you want to show those to a landlord, you can get their details and prepare them before you actually pay money, and it’s a nice way to filter out prospective applicants,” explains Nichols.
“We’ve also built a task manager into the product so an agent can come in and look at their dashboard and see what they need to do next. If they’ve got a dozen or more applications at any one time the system will show them which one they need to focus on next.
“The way the system is built, the agent is always in control and they always have the ability to check those documents themselves. The agent is given a score at the end, as to whether the applicant passes or not, or whether additional checks should be done.”
Proptech referencing startup Vouch, launched four years ago by Simon Tillyer and his wife Jaime, has proved so successful it was snapped up by lettings software firm Goodlord last summer. Tillyer claims most traditional providers are insurance companies at heart, and use credit referencing to generate new leads.
“Where we differ is that there are plenty of suitable tenants out there who might not be suitable to buy insurance – affordability might be ever so slightly out or something – and that doesn’t mean they are not going to be a good tenant.
The agent is the best person to get involved in that decision, not a kid in a call centre with a crib sheet saying a ‘yes’ or ‘no’ around insurance criteria. Simon Tillyer Founder and CEO, Vouch.
“What we do is we use tech to automate all the legwork and then the actual decision-making process is where the agent gets involved. The agent is the best person to get involved in that decision, not a kid in a call centre with a crib sheet saying a yes or no around insurance criteria.”
Letting agent’s perspective
“We are not an insurance company – we are a group of letting agents who designed and built a product for our own business and then we rolled it out to other letting agents, so it actually comes from a letting agent’s point of view.”
Vouch has just soft-launched a new intelligent referencing system that gives agents and tenants their very own virtual assistant. Tillyer claims the intelligent ‘chatbot’ – which can answer questions, offer advice, give reminders and chase up information – is “head and shoulders” above anything else on the market.
The team has also designed and built the system from the ground up to include bespoke technology for things such as facial recognition, identity checking, landlord and employer referencing, and Open Banking.
“Loads of companies are already offering Open Banking but it’s just an off-the-shelf product – all it does is spit out loads of data that isn’t relevant to a tenancy at all,” explains Tillyer. “We’ve built that integrally into our system.”
A platform from Lettings service provider, The Lettings Hub is claimed to make online tenant referencing much simpler. “Different products are required to suit different business models, whether that is a free ‘passport-style’ reference to gain pre-qualified tenants early on, or tech to increase accuracy and efficiency of in-house checks,” says Sales Director, Vince Demilio.
We’ve also seen the average age of renters falling further during the pandemic, with 60 per cent of tenants now under the age of 35. The vast majority are digital natives. Vince Demilio Sales Director, The Lettings Hub.
“We’ve also seen the average age of renters falling further during the pandemic, with 60 per cent of tenants now under the age of 35. The vast majority are ‘digital natives’ who want services that are instantly available at their fingertips and delivered online.
“Using the latest technologies such as Open Banking, Touch ID, face recognition and e-signing, combined with support and manual intervention where a human touch is needed, we believe there’s no reason lettings can’t be digitised to meet tenant demand.”
The Letting Hub’s service produces a detailed, five-page report on a tenant, plus an ongoing credit check throughout the tenancy.
Referencing is evolving rapidly as technology drives innovation and is being increasingly taken up as part of a suite of tenancy offerings.
Reference provider Canopy was launched in 2016 by former senior KPMG executive Tahir Farooqui, who had been frustrated by all the hoops he had to jump through to rent a flat.
Referencing is approached from the tenant’s perspective, using technology to allow a prospective renter to prove their suitability. RentPassport, Canopy’s core product, is a multi-channel screening app powered by Open Banking and Experian credit data, offering a free instant tenant-screening tool.
A new Right to Rent addition to the platform allows would-be renters to prove they can live in the UK by submitting ID before they start looking – a valuable pre-screen bonus for agents. Another feature, RentTracking, helps renters track rental payments.
We’re making renting faster, cheaper and easier … because it’s all done digitally – you are doing everything online. You can get a credit check in less than 15 minutes. Lee Power, Business Development, Canopy.
For agents, a basic reference is free, and covers an Experian credit check, rent affordability through Open Banking, and basic employment checks via pay slips and a written reference on headed notepaper. For £3, the comprehensive reference also offers additional phone checks with the employer, together with a reference check with the existing landlord.
“We’re making renting faster, cheaper and easier for all,” says head of business development, Lee Power. “We are speedier because it’s all done digitally – you are doing everything online. You can get a credit check in less than 15 minutes.”
Good2rent, new provider, also offers a rent passport scheme. Tenants can sign up for Rental Passport themselves, or take it out through an agent. The firm’s standard referencing service costs £10 and includes both automated credit checks and bank account checks via Open Banking, as well as a full employer/landlord check.
“What we offer is a full service where we cover all bases – income verification, rent verification landlord and employer references – we have a team to make sure that is all done properly. We’ve done our research,” says Project Manager Lauren Rutherford.
The referencing market is still evolving rapidly as technology drives innovation, and is being increasingly taken up by letting agents as part of a suite of tenancy offerings. Ross Nichols predicts it will “become cheaper and cheaper” to carry out a reference – which makes the rest of the package all the more critical.
So, do you want a free reference and less commission on utilities? Maybe. Maybe not. It’s the shape and balance of your business itself which will suggest the right path and type of reference supplier – but as we’ve seen, the choice is certainly there for you.