Understanding tenant reference checks

As a landlord, your main responsibility is to protect your investment property, and one of the best ways to do this is through tenant reference checks. Protecting your investment property comes down to ensuring you have consistent rental income and maintaining the condition of the property. 

The tenant reference check is the most important safeguard against issues such as rent arrears or anti-social behaviour. It is a fundamental due diligence process that will enable you to assess a potential tenant’s reliability and their suitability for your property. 

Here, we’ll discuss what exactly the tenant referencing for landlords specifically includes and how to spot any inconsistencies in these checks from the beginning. 

What does a tenant reference check involve?

Essentially, a tenant reference check is a systematic verification process. You can either undertake these checks independently as a landlord or get a letting agent to opt into using a third-party referencing agency. These agencies have the skillset and the expertise to be able to access relevant databases and the legal framework to be able to conduct thorough checks on your behalf. 

So, what does a thorough tenant reference check involve? 

Identity Verification (ID)

The first thing that will be looked at is the identity of the potential tenant. You will need to have access to valid forms of identification, such as passports, driver’s licences and utility bills. This way, you’ll be able to verify the potential tenant’s address and who they are.

This is a vital step in meeting your legal ‘right to rent’ obligations, as you will need to ensure that your potential tenant has the right to rent in England. Ensure the documents meet the Home Office’s specific requirements for these checks, too.

Credit history check

Credit history checks involve accessing the applicant’s credit file in order to look for any signs that they may or may not be able to pay their rent on time. A key indicator of the level of risk they may pose is if they have any County Court Judgments (CCJs), Individual Voluntary Arrangements (IVAs), bankruptcies, and a history of missed payments or defaults on credit agreements (e.g., loans, credit cards, utility bills).

The reason you need to have this as part of your tenant reference check is so that you can see whether or not the tenant is reliable and able to meet their financial obligations. 

It is important to note that a potential tenant having a low credit score doesn’t automatically need to disqualify them as a viable option. If a credit check reveals a minor issue, you can always ask them to clarify this. 

Employment verification

You’ll need to be able to confirm that the applicant is currently employed, along with their job title, start date and their annual salary. This needs to be checked to ensure that they have a stable income and that they have the capacity to afford the monthly rent. 

Make sure that you always verify employment details through official company channels, such as the HR department. Also, make sure that you look out for discrepancies between he salary claimed and what is shown on their payslip. 

Previous landlord reference

As part of tenant referencing for landlords, you’ll need to obtain a reference from a previous landlord. Questions to include in the reference would be the rent payment history, how well the property was maintained, if there was any anti-social behaviour displayed, and their reason for leaving. 

This is important as it provides you with a first-hand account of the behaviour of the tenant. Make sure, however, that you verify the previous landlord’s identity and be wary if the applicant is hesitant to give you their current landlord’s details. 

Affordability assessment

Next, as part of the tenant reference check process, you’ll need to review bank statements and payslips to be able to confirm that the declared income aligns with their financial activity and whether or not they can afford the rent alongside other costs. 

Spotting red flags and inconsistencies

Even with professional referencing, keep an eye out for these warning signs:

• Unexplained gaps: Are there significant periods of unemployment or gaps in tenancy history? 
• Evasiveness: Is the applicant reluctant to provide you with contact details for previous landlords or employers? 
• Inconsistencies: Are there inconsistencies on the application form that don’t match what has been uncovered during the tenant reference check? 
• Unexplained credit issues: Are there negative markers on a credit report without a reasonable explanation? 
• Pressure tactics: Is the applicant pressuring you to move them into the property quickly without enough time for checks? 
• “Too good to be true” offers: Is the applicant offering several months’ rent upfront without a clear reason? 

Tips for Landlords

Here are a few tips on how to conduct the tenant reference check successfully: 

• Use a reputable referencing agency: They are well-versed in legal requirements (like Right to Rent), have access to necessary databases, and can provide a comprehensive, compliant report.
• Do your own due diligence: You should conduct your own due diligence by conducting a quick public search.
• Trust your gut, but verify: Your instinct is valuable, but always back it up with hard evidence from the tenant reference checks.
• Be consistent: Apply the same rigorous referencing criteria to all applicants. This is vital to avoid accusations of discrimination.
• Understand “right to rent”: This is a legal obligation. Make sure your referencing process fully complies with the Home Office guidelines.
• Consider guarantors: you may feel that an applicant is a good fit, but their references are slightly weak. In this instance, you could consider a guarantor. 

Ultimately, comprehensive tenant reference checks are not an optional extra, but are essentially a part of responsible property management. When you invest time and effort into vetting your tenants correctly, you will significantly enhance the likelihood of a smooth, financially stable and stress-free tenancy period. 

For more information on how to protect your property as a landlord, be sure to visit our resource centre.  At CIA Landlords, we have the expertise to find the best landlord insurance deals that are suitable for your needs. Contact us today at 01788 818 670 for a quote!