Tenant referencing is a vital component in the process of letting a buy-to-let. It determines the validity of a renter and whether they're suitable to live in your property. Without tenant referencing, you're taking a massive gamble on who rents your home.
Failure to undertake tenant referencing also means, in most cases, that you won't be valid for rent guarantee insurance. So, all in all, tenant referencing is pretty darn important, and landlords should always give the go-ahead to tenant referencing before renting out their property.
But what exactly is tenant referencing, what does it entail, and how easy is it to reference renters? That's what we're here to answer, just in case you have any questions about tenant referencing and how it works in the renting process.
What is tenant referencing?
Essentially, tenant referencing is a thorough, official check on the renter(s) who want to move into your property. It includes background checks on renters to determine if they earn 2.5x the annual rent, as well as their general renting history.
Credit checks are also performed to make sure the renter doesn't have any outstanding debts or other financial-related issues. The results are then returned to you, the landlord, who can decide whether or not to rent the property to the renter.
What's included in a tenant reference check?
- Renter's address history
- Their proof of employment
- Reference letters from previous landlords and employers
- Three month's worth of bank statements
- Tax return if they're self-employed
- Letter from accountants if self-employed
- Guarantor if required (more on that in a bit)
What's included in a credit check?
- The renter's debt/credit ratio
- If they've missed any payments
- If they've had any county court judgments (CCJs)
- Public records, such as if they're on the electoral register
- How long they've lived at previous addresses
What is a guarantor?
Sometimes renters won't pass tenant referencing, usually because they're a student or it's their first time renting, and they don't have the financial credentials. If such a scenario arises, you can request a guarantor.
Guarantors provide an added layer of security, guaranteeing the rent if the renter can't pay. Sometimes this includes paying a chunk – around six months – upfront. A guarantor will also need to go through referencing, proving they earn between 2.5 and three times the annual rent. They also cover any damages that may occur in the property.
Who conducts tenant referencing?
There are several ways to reference renters. You can go through the letting agent, who typically offers the option as part of their tenant-find service. They'll arrange for the required checks so that renters go through the process.
You can conduct tenant checks yourself. However, you should be mindful that going down this route means a more hands-on approach from your side. You'll need to employ the use of a third-party company who will handle the checks, which costs between £15 and £30 per renter.
Some rental platforms, such as ourselves here at Movebubble, verify renters' affordability before they place a holding deposit on the property. It means that landlords and agents who list their properties with us have access to renter-ready, verified tenants who can move in ASAP.
Why do I need tenant referencing?
As a landlord, you want to enjoy a hassle-free let with a professional renter who loves their new home. Using tenant referencing is a way of safeguarding yourself against unverified renters who may not be able to keep up with rental payments. It acts as a security check to ensure you have the best renters moving into your property.
If you're thinking of insuring your property against unpaid rental payments, you will need to prove that you carried out tenant referencing. Without it, most insurance companies won't cover you against defaulted rental payments. It means that you won't have any cover should the renter find themselves unable to pay rent.
Making sure you have verified renters in your property adds peace of mind and lets you focus on the things that really matter: receiving passive income and providing a high-quality home for professional renters. And with Movebubble, you'll only have verified, professional renters to choose from.