A landlord's guide to tenant referencing checks

NRLA partner Rentguard shares advice around the benefits of landlords carrying out tenant referencing on prospective tenants.

Tenant reference checks can provide valuable information about a prospective tenant's rental history, employment status, and financial stability. 

It can help to provide peace of mind that you are letting to suitable tenants and can be a requirement for rent guarantee insurance.

What is tenant referencing?

Tenant referencing is a review of prospective tenants and any guarantors. It is a landlord or letting agent’s way of checking the reliability of prospective tenants and ensuring their income covers rent payments. 

There can be different levels of reference checks, and can vary depending on the service provider you choose.

Why should landlords carry out tenant reference checks?

Referencing is a requirement of Legal Expenses & Rent Guarantee Insurance policies such as Rentguard’s. This is to help ensure landlords are taking measures to find tenants who are suitable to rent the property.

Although a tenant’s financial circumstance could change at any time, referencing can provide an indication of whether they have the means to pay the rent on time and highlight red flags.

A comprehensive overview of your tenant’s financial and employment history can help you make an informed decision on who to let your property to and help to ensure your rent guarantee insurance is valid.

What does a tenant reference involve?

Reference checks can vary depending on the provider, but may include:

●     Suitable identification such as a passport or driving licence

●    Either a utility bill or a bank statement

●    Credit check; clear of CCJs, bankruptcies & indicating confirmation of residency

●    Confirmation of employment – a written employers’ reference on company letter headed paper confirming the tenant’s permanent and current employment and that their salary is at least a multiple of 2.5 of the tenant’s rent (the documents should be no more than one month old from the start of the tenancy)

●    References from former landlords

Why might a tenant fail their check?

There may be several reasons why a tenant fails a reference check. Some may find it harder to clear the criteria needed to pass a tenant reference but may still make reliable tenants.

●    Self-employed tenants

In order to clear tenant referencing, self-employed tenants must be able to demonstrate their income over a 12-month trading period at least - sometimes referencing companies want to see two years.

If they have been self-employed for less than a year and are therefore unable to prove their income, a guarantor might be required.

●    Those receiving Housing Benefit

Tenants in receipt of benefits including Universal Credit may find it difficult to meet the criteria needed to pass a check simply because they do not have sufficient income with which to pay the rent. A check might not take into account their Housing Benefit entitlement.

●    Students

Students with no income usually require a guarantor, often a parent or guardian but this could be potentially difficult if the property is under a joint tenancy, a guarantor may be harder to find. 

●    First time tenants and retired tenants 

First-time renters are sometimes asked to provide a guarantor if they can’t give references or pass a check.

Retired prospective tenants may need to provide an annual pension statement, their last three months’ bank statements, a reference from their pension administration, or a P60.

●    Tenants new to living in the UK

Landlords in England must check all people living in their property aged 18 or over have the right to rent . This must be carried out before the start date of your tenancy agreement. 

Tenants from overseas may be asked to provide a guarantor, but this can be difficult for people new to the UK if they don't know anyone suitable.

Can I still let to a tenant who has failed the reference checks?

Tenant referencing is not a legal requirement for landlords and the outcome isn’t binding. However, think carefully before taking on a tenant who has failed referencing, as it may leave you exposed to financial difficulties in the future. For example, without meeting the referencing terms and conditions of your rent guarantee insurance that would cover rent arrears, your policy may be invalid.

Also, remember that tenant referencing does not ensure a smooth tenancy - problems may arise even with a tenant that was flawless on paper.

Rent guarantee insurance can be a safety net for landlords concerned about loss of rent when a tenant can’t or won’t pay the rent.

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Help is at hand – get in touch with Rentguard

With vast experience handling insurance policies for a wide range of landlords, and with relationships with a number of leading insurers, Rentguard Insurance aims to simplify your insurance arrangements and help to protect your property, its contents, and your liabilities.

Get a quote online or speak to our specialist team on 0333 000 0169.

The sole purpose of this article is to provide information on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited trading as Rentguard and National Residential Landlords Association, an Introducer Appointed Representative of Arthur J. Gallagher Insurance Brokers Limited, accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.

National Residential Landlords Association is an Introducer Appointed Representative of Arthur J. Gallagher Insurance Brokers Limited, which is authorised and regulated by the Financial Conduct Authority. Registered Office: Spectrum Building, 7th Floor, 55 Blythswood Street, Glasgow, G2 7AT. Registered in Scotland. Company Number: SC108909. Rentguard is a trading name of Arthur J. Gallagher Insurance Brokers Limited.