Even if a tenant has failed referencing or a credit check, it doesn’t automatically mean they are unsuitable to rent your property.
Referencing reports have various aspects, and tenants can fail for different reasons. In each case, there are available options for both you and the tenant to consider if you want to move forward.
Keep reading to understand what referencing reports actually reveal about tenants and common reasons for failure.
- What will referencing tell me?
- Four common reasons tenants fail referencing
- What should I do if my tenant fails referencing?
- Rent Guarantee Insurance and Zero Deposit schemes
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What does referencing tell me?
Referencing a tenant is the most effective way to understand their eligibility, affordability, and reliability.
A reference report offers insights into the tenant’s background, including a credit check, employment and income verification, identity confirmation, and a previous lettings reference.
Together, these elements give an overview of each applicant’s suitability.
Common reasons tenants fail referencing
If your tenant hasn’t passed referencing, start by reviewing the referencing report to pinpoint the aspect(s) they didn’t clear.
This will guide you in planning the next steps with your tenant, allowing you to explore different options depending on the reasons they failed.
1) The affordability calculation
Many referencing agencies use a combination of open banking and employer referee to verify a tenant’s income.
We then apply a multiplier to determine the affordable rent for the tenant based on their income. The report provides an estimate of the rental amount within their means.
In case of a tenant’s failure, you can clearly see by how much. If they’re close, you might consider lowering the rent or accepting them despite not meeting industry-standard affordability rates.
Other options that we would recommend include adding a guarantor to the application or requesting a few months’ rent in advance.
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With Rent Now, OpenRent mandates that guarantors sign the same tenancy agreement as your tenants, making them legally responsible for covering rent and potential property damages if the tenant fails.
Guarantors are an excellent option, particularly for certain renters like students who may struggle to afford the rent independently.
For tenants who fail affordability checks but have savings, consider requesting a couple of months’ rent in advance for added peace of mind. This approach is also helpful when a tenant can’t provide a guarantor.
2) Adverse credit history
A tenant might also fail referencing if they have adverse credit history, such as a County Court Judgement (CCJ).
A CCJ can be issued by a court when someone fails to respond to a summons for owing money to another individual. It officially declares the owed amount, payment details, deadline, and recipient.
As a landlord, you might consider overlooking a CCJ, especially if it’s for a small amount, occurred several years ago, or resulted from exceptional circumstances.
3) Lack of credit history
It’s crucial to understand that there are instances where a tenant may have no credit history, making them absent from credit records.
Legitimate reasons for this include individuals who are new to the UK or those who haven’t built a credit footprint, perhaps due to living at home.
Students often fall into this category, lacking a credit rating but still being suitable renters, with or without a guarantor.
If your tenant failed referencing due to a lack of credit history, it’s worth reading the report in full and talking to them to discern why this was the case.
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4) Bad lettings history
As a part of the referencing process, it’s usual to contact a tenant’s past landlord or agent to assess their reliability.
If the referee gives a negative reference, examine the report to understand why the tenant didn’t pass. In some cases, you might find the reasons provided are relatively minor, and if so, you may still choose to proceed with the tenant.
What should I do if my tenant fails referencing?
Proceed as is…
After speaking to the tenant about why they failed referencing, you may be happy to proceed as is.
This decision is common among landlords, especially when the tenant narrowly failed one aspect of the reference or provided a valid explanation for their failure.
Feel free to ask the tenant directly for any additional supporting information they may have.
Cancel the application…
Upon reviewing the referencing report and having a conversation with the applicant, you may ultimately decide to look for other tenants, which is entirely within your rights.
Typically, the default is for landlords to refund the holding deposit; however, you might be able to make a claim if the tenant has substantial false or misleading information.
Rent Guarantee Insurance and Zero Deposit schemes
Some Rent Guarantee Insurance (RGI) policies and deposit replacement schemes specify that all tenants must pass referencing, or have a guarantor undergo the process on their behalf.
In cases where a tenant fails referencing, having a guarantor can be an excellent alternative to meet these requirements.
Therefore, if a tenant is able to provide a guarantor, it might still pave the way for a successful tenancy.
In any case, it’s always best to be transparent and communicate with applicants, if they encounter referencing challenges, exploring and discussing potential options for moving forward.
