What Happens Next if a Tenant Fails the Reference Checks?
Running credit and background checks on tenants is an essential part of managing a tenancy successfully, but what does a landlord do if a tenant fails them?
This question is one faced regularly by many landlords regardless of which lettings sector they operate in – people from the bottom to the top of the tenant pool may have had problems in the past when a landlord looks into their banking, employment, renting or credit histories.
Taking Care of Tenant Referencing
Many organisations, including ourselves here at Upad, can help you carry out background checks on a tenant, but if the results reveal a problem then it is likely you will have to do a little checking up yourself to determine how serious the problem is, depending on which area of their lives it crops up in. This includes the below four points.
Tenant's Banking Situation
Negative feedback usually means someone has been moving bank accounts too often, which can be a sign of poor money management or credit problems. One answer to this, if a good explanation cannot be provided, is to request a higher than usual deposit and 3 months' bank statements to review how they prioritise their rent vs their lifestyle.
Can the Tenant Afford the Rent?
If the tenant's income is less than two and half times the rental amount they will usually fail referencing. However, the tenant may have significant savings which they plan to use to supplement their rental income.
Previous Landlord Reference
If a tenant can’t provide at least one former landlord who will vouch for their good behaviour and rent payment history then it might be time to start looking for another tenant.
Tenant's Credit History
If a tenant is revealed to have a poor ‘credit history’ then all is not lost – the UK’s credit history industry often lowers people’s credit scores for relatively minor infringements of lending agreements and sometimes because a persona has not taken out a loan for a while, which some might see as a virtue. So instead perhaps either ask them to explain why they think their score is low or either ask for a slightly larger deposit or rent guarantor such as a parent instead.
If the tenant referencing comes back negative - a guarantor is always a good solution. Alternatively you want to ask for the tenant to pay for the full rent up-front. This is surprisingly common, perhaps reflecting the increasing uncertainty faced by tenants and landlords alike.