The Ultimate Guide to Tenant Referencing: What Every Landlord Should Know

As a landlord, finding the right tenant is crucial to the success of your rental business. One of the most important steps in this process is tenant referencing. Before moving a tenant into your property, it’s essential to ensure they meet certain criteria to safeguard your investment and reduce risks. In this blog, we’ll break down the tenant referencing process, covering everything from identity verification to rent insurance.

1. Right to Rent & ID Verification

The first step in tenant referencing is verifying the tenant’s identity and their right to rent in the UK. This is a legal requirement that has been in place for several years. Here’s what you need to check:

• If the tenant was born in the UK, they automatically have the right to rent.
• If the tenant was born outside the UK, they must provide the necessary documentation, such as a visa, to prove they are allowed to rent in the country.

You can carry out these checks yourself or, as recommended, hire a referencing agency to handle the process for you. Referencing agencies can streamline this step, ensuring that you meet legal requirements with minimal effort.

2. Credit Check

Once you’ve confirmed the tenant’s identity and right to rent, the next step is a credit check. This will help you assess the tenant’s financial stability and creditworthiness. You can either ask the tenant to provide their credit report or let a referencing agency handle it on your behalf. Most agencies can pull this information within hours, providing you with a quick turnaround.

A credit check will give you insight into the tenant’s financial history, helping you determine whether they are likely to pay rent on time and in full.

3. Affordability Check

An affordability check is a critical yet often overlooked part of the referencing process. While a tenant may earn a substantial salary, it’s essential to assess their actual disposable income. For example, a tenant earning £50,000 a year but spending £45,000 will only have £5,000 left—insufficient to cover annual rent if it’s higher than that. Conversely, a tenant earning £35,000 but spending only £15,000 could be in a better financial position to afford the rent.

In short, don’t just look at the gross income; dive deeper into the tenant’s spending habits to ensure they can afford your rental property.

4. Employment Reference

As part of the affordability check, an employment reference is essential. This involves contacting the tenant’s employer to confirm their salary, employment status, and whether they are in permanent or temporary employment. An employment reference adds another layer of security by verifying the tenant’s income directly from the source.

5. Previous Landlord Reference

Another important step in the referencing process is obtaining a previous landlord reference. This will give you a sense of the tenant’s rental history, including how they maintained their previous property and whether they paid rent on time.

Here’s a pro tip: Contact the previous landlord rather than the current one. A current landlord might give a glowing reference to get rid of a problematic tenant, while a previous landlord is more likely to offer an honest opinion.

6. Rent and Legal Insurance

If a tenant passes all the referencing checks, you may want to take an extra precaution by getting rent and legal insurance. This type of insurance covers your rental income if the tenant loses their job or faces unexpected financial difficulties. It’s a smart way to protect yourself from unforeseen circumstances.

Letting Agencies: How We Can Help

If you find the referencing process overwhelming, we can manage it all for you. At ForTheLandlord.com, we offer comprehensive letting services, including tenant sourcing, referencing, and full property management. Whether you’re a hands-on landlord or looking for professional help, we’ve got you covered.

If you need assistance or want to learn more about our services, visit our Talk To Us page.