How can your agency help your landlords manage risk with tenant referencing? [+ free tenant referencing checklist]
10 May 2021
Estate and letting agents need to fully understand what criteria and potential risk their landlords will accept when choosing a new tenant, especially where they'd be willing to compromise - or what constitutes a hard "no". That conversation can take place at three points, as Liz Lloyd, Account Management Team Leader at Vouch, explains.
Referencing can help flag many of the potential risks in renting a property to a new tenant, by delving into your tenants' background and circumstances. You can then make a decision on behalf of your landlord, or present them with your recommendations. You'll need to understand where your landlord may be willing to compromise and where you can help them manage risk, to make sure there's no ambiguity when you give the green light for a new tenant. You can also download a free checklist to help your tenants prepare for the referencing process and ensure they have the right information to hand.
Before you even head down the referencing route, you can check what your landlord is looking for in their next tenant. There's a lot of uncertainty with tenant incomes, especially at the minute with furlough coming to an end, and it's a good point to see how comfortable they'd be accepting a furloughed tenant.
You can drop the question into your re-marketing plans with your landlord. "I just want to check what criteria you're willing to consider, especially with the furlough scheme." This gives your landlords the chance to give a straight answer, a yes or no, based on their preference so you can plan appropriately for the next steps.
You should also ask if they anticipate taking out a rent guarantee service to help them in the event that a tenant can't pay rent, because the furlough salary would still have to meet the normal affordability criteria for the landlord to be eligible.
Agents should consider using pre-qualification as an extra precautionary measure before submitting a tenant for referencing. A pre-qualification form that the tenants fill out can say that they meet certain criteria, they've paid the holding deposit, and they understand that, if they are found to be outside of that criteria, the holding deposit will be retained. Pre-qualification therefore protects your own risk as well as your landlords'.
Questions you can ask include:
Do you have any adverse credit in the last 3 years?
If renting, are you able to provide a positive reference from your current landlord?
Can you confirm you earn at least 30 times the rent PCM each year, and can you prove this with either an employment reference, accountant reference or proof of funds?
Do you have the right to rent in the UK and documentation to prove this? (You can always share the government link for the full list of what your tenant could provide on this point.)
You can also ask applicants if they're on furlough and, if so, what salary percentage has been agreed between them and their employer? You can take their response back to your landlord. Let them know that the affordability may be low and, while it may not be a problem for rent guarantee, you'd like to check their preference.
Having your tenants' responses in writing can help solidify everything. Your agency is protected, and you're not risking your time and your landlords' property's shelf life.
The referencing results
On to the main event. Once your tenant goes through referencing, there are certain things to look out for, which a third party referencing company such as Vouch can flag for you to consider. For example, if the referee works at a small cafe, and they've only got a Gmail email address, that's understandable. If they work for BT and they've put a Gmail address, then you've got reason to be suspicious - and it's unlikely you'd get rent guarantee on that either. Similarly, we now run all tenants through the CIFAS database to help eliminate fraudulent applications at Vouch - an extra step to make sure you can make the most informed decision about your landlords' tenants.
An agent should be confident enough to then make a judgement call based on all the evidence. For example, during the pandemic, some employer references were delayed or couldn't be obtained through lockdowns, as companies with furloughed staff found they didn't have the capacity to respond to referee requests. Some agents have therefore chosen to qualify tenants based on their savings, rather than their employment, or applying a guarantor, if a reference couldn't be obtained.
The key thing to remember at each step is to make sure that you're applying an appropriate level of caution as you advance through the process, always taking into account the current market conditions and bearing in mind your landlords' wishes.
Goodlord and Vouch are part of the Goodlord Group. Goodlord also offers a referencing service within its pre-tenancy lettings software for agents. Learn more.
Oh Goodlord Limited is an Appointed Representative of Goodlord Protect Limited for general insurance products and credit broking. Goodlord Protect Limited is directly authorised by the Financial Conduct Authority, registration number 836727. You can check this information on the Financial Services Register by visiting www.fca.org.uk/register or by telephoning 0800 111 6768 (Freephone) or 0300 500 8082 from the UK. The FCA is the independent watchdog that regulates financial services.