Here are four points in the referencing process where agents can help make decisions to carefully manage risk for your landlords.
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'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.
1. Re-market the property with more certainty
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 during the cost of living crisis and with rents so high.
You should ask if they would like to use a rent protection service to help them in the event that a tenant can't pay rent. This will help create more certainty and reduce the risk of your landlords - and your agency losing out on regular rental income.
2. Pre-qualify your tenants
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 and they've paid the holding deposit.
It can also help the tenants understand that, if they're found to be outside of that criteria, they may not get their holding deposit back. 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.
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.
3. Analyse 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 personal Gmail email address, that's understandable. If they work for Microsoft and they've put a personal Gmail address, then you've got reason to be suspicious - and it's unlikely you'd get rent protection on that either.
Similarly, we run all tenants through a 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.
4. Make a judgement call - and use a guarantor, if necessary
An agent should be confident enough to then make a judgement call based on all the evidence. For example, agents can choose to qualify tenants based on their savings, rather than their employment, or applying a guarantor, if a reference couldn't be obtained.
In fact, recent Goodlord data shows that more agents are asking for a guarantor than ever. Fifty-eight percent more tenants earning between £25,000 and £49,999 were asked for a guarantor in 2023 to date versus 2020 figures.
This continues a noticeable trend back in February 2022, which saw a 36% in the previous four years in guarantor requests.
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.
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