Home & Legacy's Guide to Tenant Referencing
Problematic tenants can be expensive which is why insurers expect a prudent landlord would check a tenant's background and their ability to meet the monthly rent before letting their property. That is why it is a condition of all our landlord policies, which include rent default protection or landlord legal expenses cover - that all tenants named on the tenancy agreement are satisfactorily referenced, along with any guarantors (if applicable).
Getting satisfactory tenant references is essential for any would-be landlord, whether they're taking out additional covers or not, but where to start?
The following guide answers the questions landlords may have about getting the references they need to ensure Home & Legacy's landlord legal expenses and rent default protection cover is valid, as well as giving them all-important peace of mind.
Obtaining suitable references
To make sure your cover is valid, the insurer requires you to ensure that your tenants and if applicable their guarantors have been satisfactorily referenced. As a landlord, it is your responsibility to obtain the references that are required - either yourself or via your lettings agency.
So what types of references are acceptable to the insurer?
A comprehensive reference from an independent referencing company
A satisfactory comprehensive assessment is recommended as it is one that satisfies all the insurer's referencing criteria.
The following are some providers who can carry out a comprehensive assessment of your tenant:
- Tenant Letting Check
- Managing Agents Reference Assistance Services Limited (Maras)
The credit referencing provider might confirm the tenant is acceptable subject to obtaining proof of address. In which case, copies of any documents you obtain to evidence proof of address muct be kept as they will have to be supplied to the insurer if you need to make a claim.
As an alternative to obtaining a comprehensive tenant reference, the insurer will accept two satisfacoty references as long as one is a financial reference from a previous landlord or a friend/associate.
A standard credit check from an independent referencing company
The credit score must be satisfactory
A reference from an employer
An employer's reference will be accepted as the financial reference as long as the tenant has been employed with the same employer for at least 6 months.
The employer’s reference must confirm the following:
- Annual gross salary (50% of any guaranteed commissions, bonuses or overtime will be taken into account)
- Confirmation of the position held within the organisation
- Confirmation of type of employment, i.e. whether full time, temporary, long/short term contract (The contractual period must last beyond the end date of the tenancy agreement to be acceptable)
The reference must be produced on formal business letterhead and be signed by the HR department, finance director, managing director or equivalent.
For self-employed tenants, a positive accountant’s/solicitor’s reference which confirms income and suitability to meet financial commitments for the tenancy period will be accepted. The accountant must have worked for the applicant for over a year and submitted at least one tax return for the tenant.
The monthly rent should be no more than 40% of the tenant's gross monthly income.
So what will be accepted by the insurer for your tenant's guarantor, if one is required?
For a guarantor the insurer will be happy to accept a satisfactory financial reference only. This can be any of the above.
The monthly rent should not be more than 30% of the guarantor's gross monthly income. For an employer's reference the guarantor should also have been employed with the same employer for at least 6 months.
Frequently asked questions
No, it is not necessary to re-reference existing tenants to benefit from the insurance. However all tenants, whether existing or new, must have been suitably referenced at the start of the tenancy. Copies of the references must be made available in the event of a claim. If insurance is required for existing tenants it is important for you to note that it may not be possible for you to make a claim during the first 30 days of the insurance cover.
As a guide, a tenant’s rental commitment should be no more than 40% of their gross income. A guarantor’s rental commitment should be no more than 30% of their gross income.
References must be no more than 60 days old from the start of the tenancy. The tenant’s circumstances may have changed, for instance they could have become unemployed.
4. My potential tenant has a small outstanding county court judgement (CCJ). Will the insurer accept this?
It is important to ensure your prospective tenant is suitable from both the insurer’s perspective and for your own peace of mind. If there is an outstanding CCJ this could suggest the individual is inappropriate to have as a tenant – perhaps they are financially weak or do not take their financial commitments seriously. Ask them why they have not cleared the judgement.
Such tenants may be acceptable if:
- There is one county court judgement below £500; if the references obtained (apart from the CCJ) are satisfactory and their income is sufficient to meet the rental commitment
- You have obtained a comprehensive assessment from a referencing company which has concluded that the tenant is acceptable.
Yes you can, but the student must have a guarantor who has been satisfactorily financially referenced and signed a guarantor’s covenant to making them liable for the rent in the event of default by the tenant.
You can get insurance if your tenant receives Local Authority Allowance, Housing Benefit or Income Support, but the tenant must have a guarantor who has been suitably financially referenced and signed a guarantor’s covenant making them liable for the rent in the event of default by the tenant.
Such cases can be considered upon specific referral to Home & Legacy. We will need to see a copy of the proposed agreement between you and the university/local authority. Terms may be applied to the cover.
It depends how they are referred to on the tenancy agreement. Spouses and partners who are not contributing to the rent but who are a ‘named tenant’ on the tenancy agreement must have at least one satisfactory reference. Obviously, the main earning tenant should be capable of covering the full rental commitment in order to meet the required referencing criteria.
Where the spouse/partner is noted as a ‘named occupier’ as opposed to a ‘named tenant’ they will not need to be referenced for the purposes of the insurance. However, the insurance will only respond to claims arising from default by the tenant and not by the ‘named occupier’.
No, a previous landlord’s reference can only be considered as a personal reference and not a financial one. To be accepted as a personal reference the previous landlord must provide confirmation of the tenancy address and a positive response to the following questions:
- Was the rent paid on time and in full each month?
- Did the tenant leave owing any money?
- Was the property returned in satisfactory condition?
- Would the landlord re-let to the tenant?
- Was the deposit returned in full?