Tenant referencing helps landlords find the right tenants for their property. But how does it work? Here, we explain all.
Letting your property is a big step. You’ve put a lot of time and effort into finding the right investment. You may have renovated and redecorated, or perhaps you’re renting out part of your home. So it stands to reason you want a tenant who’s responsible and reliable.
Tenant referencing checks build your trust in your tenants. It gives confidence they’ll pay their rent on time and treat your property with respect.
In this guide, we cover what tenant referencing involves, how long it takes, and the common reasons people fail checks. We’ll also take a look at costs and whether you can perform these crucial checks yourself.
What is a tenancy reference?
Tenant referencing is a process of screening and background checks to help landlords assess the suitability (and potential risk) of tenants.
It helps landlords avoid potential problems like late rental payments (or none at all), property damage or causing a nuisance to neighbours. While tenancy references aren’t a magic crystal ball, they do highlight issues that might suggest problems down the line.
So, what do landlords check when referencing?
Tenancy referencing refers to three main checks which help landlords get a better understanding of prospective tenants.
These are:
1. Right to Rent Checks
“Right to Rent” is the only legal requirement for tenant referencing checks. This legislation (which came into force in 2016) says all landlords or letting agents in England must check tenants have the legal right to live in the UK.
If your tenant fails Right to Rent checks, you can’t legally rent your property to that person.
There’s more information about Right to Rent checks (and what documents you need) on the gov.uk website.
2. Tenant Credit Checks
You have to ask your prospective tenant’s permission before conducting credit checks.
These checks confirm things like their credit history, past bankruptcies or any County Court Judgements (CCJs) against them.
While a basic credit check might just cover credit history, this can also include address confirmation, searches for previous names, ID verification checks as well as bankruptcy and insolvency data.
3. Tenant Reference Checks
As well as “formal” tenant referencing checks, many landlords also ask for a previous landlord reference and estate agent reports.
This is a quick and simple way to understand whether there were any major issues with previous tenancies, such as property damage or rent arrears.
Lots of landlords also ask for employer references to confirm things like income and contract dates. This gives peace of mind that your prospective tenant has the financial means to cover their rent.
Can I do my own tenant referencing checks?
Yes!
If you’re a landlord, there’s nothing to stop you from running tenant checks yourself.
You can do Right to Rent Checks yourself (with advice on how to do this on the government website), ask for things like past bank statements and references to confirm earnings — and away you go.
But ask yourself, do you have the time and in-depth knowledge required? Do you have the confidence all the details are right, you’ve obtained comprehensive references, and there’s nothing you’ve missed? For lots of people, the answer is no.
For this reason, lots of landlords use professional tenant referencing companies.
These companies (such as Good Lord, Open Rent or the NRLA to name a few) ensure checks are completed with accuracy and speed. They’ll provide a final report with all the information and advice you need to make a decision.
You can also pick from a range of services, usually in the form of “basic” through to “advanced checks”. Basic checks normally cover credit checks and Right to Rent, while advanced checks will include additional products like landlord and employer references.
While timescales differ (depending on how long things like employer and previous landlord references take), you can normally expect check results back in 3-5 working days.
How much does it cost to outsource tenancy referencing?
The costs of outsourcing tenancy referencing depend on the company you go with.
As a rule of thumb, full tenant checks start around £25 to £30. A more basic service (just including credit checks) is usually around £12 to £15.
If you own more than one property, some companies also offer bundles. So if you need several references in the near future, you could save money by buying in bulk.
Do landlords or tenants pay for tenant referencing?
For landlords in England, you can’t charge tenants for any tenancy referencing checks.
This is down to the Tenant Fees Act, which came into effect in 2019. This legislation classes reference checks as a “Prohibited Payment”.
Similar rules apply in Scotland and Wales. Scotland banned charging tenant referencing fees back in 2012. Wales introduced similar legislation in 2019 with the “Renting Homes Act”.
The situation is slightly different in Northern Ireland, where landlords can charge tenants for referencing costs. Landlords can’t profit from these charges though. So the amount charged must be the actual cost of the checks.
Why do people fail tenant referencing?
There are lots of reasons why people fail tenant referencing checks, often depending on the type of checks done.
For instance, one person might “fail” tenant referencing because of a negative report from a previous landlord. Someone else’s check might reveal a low credit score or an unstable income.
It’s important to remember this isn’t an automatic “fail”, though. There’s no obligation to refuse a tenancy for anything other than failing “Right to Rent” checks.
Apart from the legal right to rent in the UK, the final decision is completely up to you as the landlord. No matter what comes up in tenant referencing checks, you can rent your property to whomever you wish.
Note: Rental guarantee insurance is usually only available with tenants who pass referencing checks. So if protecting your rental income forms part of your landlord insurance policy, carefully consider whether you wish to proceed. Some insurance companies may provide cover with a suitable guarantor, but do talk this through and check your policy documents.
If a tenant fails checks, some landlords might abandon the process and move on to finding other, more suitable tenants. Some might decide to go ahead or seek further clarification or security on any issues.
Here are a few scenarios of why people might fail checks:
- Negative references: Poor references from previous estate agents, landlords or employers might suggest an unsuitable tenant. Depending on the issues raised, you could discuss the bad reference further (with either the tenant or the person giving the reference) before making a decision.
- Employment contracts: If someone has a temporary contract or a “zero-hour” contract, they might not pass referencing checks. In reality, though, they could be a good tenant with a highly secure income and no problems paying the rent. Most landlords would decide to proceed (or not), on an individual case-by-case basis.
- Self-Employment: This is a similar situation to someone with a zero-hour or temporary contract. While self-employed income can fluctuate (which impacts tenant referencing checks), this individual could be a perfect tenant with no issues paying the rent.
- Limited credit history: If someone is young, has recently moved to the UK or changed address frequently, they might not have enough credit history for checks to happen. While they could be reliable tenants, this might indicate a false address history. So it’s a good idea to tread carefully.
- Poor credit history: If a potential tenant had financial issues in the past, this will show up on their credit report for up to 6 years. Their financial situation could have vastly improved by now, though. So again, the best way to decide is on a case-by-case basis.
In many of these instances, landlords ask for additional securities like rental payments upfront (for instance, 6 months’ rent in advance), or a guarantor.
Can a guarantor help if my tenant fails referencing checks?
A guarantor is someone who signs an agreement to share your tenant’s responsibilities outlined in your tenancy agreement. This usually covers payments for any damage as well as responsibility for rent payments.
It’s a common way for landlords to proceed if a tenant doesn’t pass referencing checks.
A guarantor is normally a parent or guardian, but this could be anyone over the age of 18 (that’s willing to enter into the agreement).
A suitable guarantor has a good credit history with a regular stable source of income (i.e., a permanent employment contract), as well as enough savings to cover any rental arrears.
Can I refuse a tenancy?
Yes. It is your decision whether to accept a tenant or not.
Tenant referencing helps you make an informed decision about an applicant’s suitability. With comprehensive checks, you’ll have all the relevant information you need to proceed with confidence. The choice is down to individual landlords.
However, if you refuse a tenancy for reasons other than those covered in tenant referencing checks, be careful. This could leave you vulnerable to legal action (and substantial legal expenses).
By law, you can’t refuse to rent your property if the reasons are discriminatory.
These reasons include:
- Age: Refusing an applicant because they are too young or too old.
- Gender or sexuality: Refusing a tenancy based on someone’s sexual orientation or gender identity.
- Marital status: Ruling out someone because they are single, cohabiting or recently divorced (for example).
- Pregnancy: Refusing a tenancy because someone’s pregnant. This also applies to women with children.
- Religious beliefs: Discriminating against someone based on their religion, or refusing a tenancy based on your own religious beliefs.
- Race or ethnicity: You can’t refuse a tenancy based on someone’s race or cultural background.
- Disability: Refusing a tenant’s application on the grounds of disability or long-term health issues.
Universal credit and housing benefits are special cases. The only time you can refuse someone on housing benefits or universal credit is if your buy-to-let mortgage specifically states your property can’t be let to people on housing support.
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