Why Tenant Referencing is More Important Now Than Ever!

Tenant referencing is becoming increasingly important for private rental sector landlords in the UK with a reported rise in tenants in severe arrears.

In the first quarter of 2013 severe rent arrears rose by 4,000 to 94,000 and is the fourth highest figure on record, according to Paul Shamplina, founder of Landlord Action.

“The highest level ever was recorded in the second half of last year, and over the last 14 years, our experience of professional bad tenants has been plentiful. Professional bad tenants will seek out someone new to the market who is self managing a property and who, out of desperation to avoid a void period, will accept a tenant with minimum referencing,” he explained.

“Some professional bad tenants will even entice a landlord to let to them by offering two to three months upfront rent instead of providing thorough referencing. They then will refuse to make any further payments.” he added.

It is likely that as the number of arrears continues to rise there will be a bigger demand for background checks on tenants.

Recent research by 192.com has revealed that one in five renters say they have sometimes or often concealed their real identity, 12% have lied about where they live and 10% are prepared to lie to make money.

Dominic Blackburn, product director of 192.com, said that background reports are particularly important for the millions of new landlords entering the rental market. Figures from the Council of Mortgage Lenders shows that gross buy to let lending was 19% higher than the £13.8 billion advanced in 2011, reaching its highest level for four years. Some 1.5 million property investors held buy to let mortgages by the end of 2012.

According to Paul Shamplina, the rise in problem tenants is due to a growing buy to let market, and a stagnant economy: “A lack of affordable housing, with restricted funding in the mortgage market forcing more people to rent, combined with cuts to housing benefit, stagnant wages, and a rise in the cost of living and rising unemployment. The result is more problem tenants.”

He also pointed out that the so called “bedroom tax” and housing benefit reform will put further pressure on landlords and tenants. “One of the greatest concerns for tenants is dealing with one, in many cases reduced, payment in place of the various benefits and tax credits previously available. Couple this with the bedroom tax where some claimants will see their housing benefit portion reduced by up to 25% on the basis of under occupancy, and it’s inevitable that landlords can expect shortfalls in rent. The whole system is in a sad state of affairs which is likely to lead to a greater number of impoverished tenants,” he said.

Richard Lambert, chief executive officer of the National Landlords Association, said that it is important to be satisfied that appropriate tenant checks have been carried out before granting a tenancy.

“Landlords or letting agents should meet the potential tenant to check they are who they say they are before entering into a contract. Landlords should carry out background checks on potential tenants to include referencing, credit reports and identity checks. This will help the landlord to build a picture of the potential tenant before offering a tenancy,” he explained.

He also said that landlords should take a deposit from their tenants and protect it in a government endorsed tenancy deposit protection scheme such as my deposits and should also carry out a full inventory and schedule of condition in case the tenant defaults on rental payments or causes damage to the property during the tenancy.

“This could provide vital evidence if there is a dispute over the return of the deposit when the tenancy ends.” he added.

Bryn Cole, managing director of tenant referencing specialists, FCC Paragon, explained that typically a good reference should include a credit history check which will highlight any CCJ’s and bankruptcies, identity checks, affordability calculations and residency checks. “However, we find it is just as important to obtain references from the current or previous employer and the current or previous landlord as this can potentially reveal more about the tenant’s suitability.” he said.