Verifying a tenant's income by checking payslips is a standard practice of tenant referencing. But what are the issues? And what's the alternative?
Tenant referencing can be difficult for everyone. Agents need to find an effective way to conduct the reference, tenants have to jump through hoops to secure a property, and then a landlord has to choose whether the tenant is right for their property.
There's no 'one right way' to reference a tenant. Every application and process has different requirements. Some agents choose to reference a tenant by themselves, and others use third party providers.
However, in the majority of cases, an agent and landlord will want to know that the tenant can actually afford to rent the property, and that the tenant is who they say they are.
Traditionally, an agent, landlord, or the reference provider, will have to verify documents - whether through payslips or passports. However, this can create opportunities for fraud.
Here are the issues some document verification can cause and how to minimise them:
- What is a Right to Rent check, and how are documents involved?
- How can technology minimise issues with Right to Rent checks?
- What documents are used for for credit checks?
- How is payslip fraud becoming more sophisticated?
- How can technology remove the need for document verification?
What is a Right to Rent check, and how are documents involved?
Landlords and letting agents need to check if their tenants can legally live in England. Right to Rent checks aren’t necessary for Scotland, Wales and Northern Ireland, but it is an integral part of the referencing process in England.
If a letting agent or landlord doesn’t complete the Right to Rent check, they can be susceptible to a minimum of £10,000 per tenant in rented accommodation or even be sent to prison for five years.
Letting agents or their reference provider will have to look through documents, checking that:
- The documents are original and belong to the applicant
- The photos on the document are the applicant
- The date of birth matches other documents (and believable)
- The documents are not too damaged and have no evidence of fraud
- The names on the documents match other documents
To complete a Right to Rent check, a prospective tenant must provide proof of identification and if they are not a British citizen, they must provide a share code.
How can technology minimise issues in Right to Rent checks?
There are certain issues that landlords and letting agents could fall victim to during their Right to Rent checks. For example, manually checking the details of each proof of identity to see if they are correct and not fraudulent can lead to possible human error.
To minimise this, the Government introduced Identity Verification Technology (IDVT) that will check the validity of every document used to verify a tenant’s identity. This is used by referencing providers, such as Vouch, to help enable digital Right to Rent checks.
Through using cloud technology and AI, the process of verifying documents online not only makes the process more secure but it speeds up the process for the referencing platform.
What documents are used for credit checks?
Credit checks are also used during the referencing process to determine whether a prospective tenant is suitable for a property. During this process, landlords and letting agents can determine whether a tenant can meet rent payments every month.
Often, a landlord, letting agent, or third party provider will rely on checking documents, such as checking over a tenant's last three months' worth of payslips.
Credit checks are also usually done to understand the financial behaviour of a prospective tenant. For example, for general credit checks, or if a tenant has any CCJs associated with their name.
However, verifying a tenant's income through payslips has issues. Goodlord found in 2022 that 1 in 1,000 referencing applications were proved to be fraudulent, and 54% of those proven to be false involved payslip fraud.
How is payslip fraud becoming more sophisticated?
When launching Goodlord's new tenant referencing tier - Pro - Goodlord found that 95% of fraud in referencing comes from income fraud.
In the launch webinar for Pro, Costas Frangeskou, Goodlord's Director of Growth, explained that: "It's not about an agent getting a payslip, using tippex and putting their new salary in with a biro."
Instead, payslip fraud is becoming more sophisticated - thanks to:
- Increased use of Photoshop and digital editing softwares
- More ways to understand how to 'crack' the system
How can technology remove the need for document verification?
Asking tenants to use open banking is always the first recommendation that we make at Goodlord to help reduce the risk of fraud in the referencing process.
Open banking can offer a faster and more secure way to verify your applicant's income and recurring rental payments, as your referencing provider can check more than just the rental or salary amounts. Read why open banking is important for letting agents here.
Agents and landlords that conduct referencing should also look for other ways to verify a tenant's income, rather than payslips. If open banking isn't an option, it's wise to find a provider that directly integrates with HMRC or payroll providers.
This means that the referencing provider can directly confirm a tenant's income with HMRC or the payroll provider, without having any payslips involved. That means less reliance on document verification - and more checking at the source.
Goodlord's new PRO reference avoids document verification by checking a tenant's income directly at the source. Find out more here.
