Given that rents have risen faster than wages in recent years, it’s not surprising that perfectly good tenants are failing the affordability checks run by referencing agencies, but that doesn’t mean you have to turn them down.
It’s possible that the ‘bank of mum and dad’ will come to the rescue. Just as many parents are helping sons and daughters buy their own homes these day (adding to the deposit for first time buyers), they are also helping out with the rent.
With student lets, it’s very often the parents who pay, but even working tenants will sometimes need financial help from mum or dad. If you have a tenant who fails the credit check but you want to accept them anyway, you can always ask if they know someone who will step up as guarantor.
What is a guarantor?
A guarantor is someone who is legally obliged to cover a tenant’s rent and other liabilities if the tenant defaults. It’s usually the tenant’s mum or dad but can be another relative or family friend.
Rent guarantor requirements
Before accepting someone as a guarantor, make sure they are based in the UK as you can’t run a credit check on someone based overseas and it will be hard for you to chase them for payment.
Ideally, a guarantor should be a home owner and you should run a reference report and credit check on them to make sure they can afford the rent in addition to their own living costs.
Who can be a guarantor for overseas tenants?
Obviously, foreign students are unlikely to have a parent living in the UK, in which case you could ask them if they have a family friend based here who could fulfill the role. Otherwise, if they fail the affordability check, you could ask them to put up a bigger deposit or pay six months’ rent in advance. The same goes for professional tenants who fail the affordability checks.
What are the clauses to add in the assured shorthold tenancy agreement?
One thing to remember when accepting a guarantor is that you must have a written tenancy agreement. It’s best to include the guarantor’s details on the agreement but if you don’t, you must have a Deed of Guarantee. This must be signed by the guarantor before the tenant signs the tenancy agreement and their signature must be witnessed.
If mum or dad – or anyone else for that matter - stumps in the tenant’s deposit, their details must be included on the tenant’s deposit protection certificate and you must serve them the Prescribed Information.
It’s always a good idea to take out rent guarantee insurance in case your tenant defaults – especially if they are on a zero-hours contract or still within their probationary period at work - but at £80 to £100 per policy it can work out quite pricey if you have multiple tenants. However, it’s definite worthwhile considering if you’re thinking “I’m pretty sure this tenant will be fine but I’m not quite 100 percent”!If you do want to buy rent guarantee cover, the tenant or their guarantor will have to pass a professional credit check. You might think that if they’ve already passed a credit check or they have someone guaranteeing the rent, you don’t need insurance, but a belt-and-braces approach is always the best.
To find out more about Upad Tenant Referencing, call 0333 240 1220.