Finding the right tenant takes more than a reference check.
The rental market is fast-paced and competitive. Agents have an average of six viable applicants for every tenancy. In such a climate, it could be tempting to let the property to the first applicant to pass a reference check. Bish, bash, bosh – done.
But that approach is short-sighted. In 2023, the rental landscape is complicated. There’s a mix of high demand and financial pressures. Landlords are also feeling the pinch, facing higher mortgage rates and increasing costs. Agents need to do more than the basic reference check to protect the interests of their landlords, and in turn to protect their business.
Here’s a rundown of the important considerations.
Income and financial stability
Tenants spend, on average, 38% of their income on rent. It’s a sizeable portion of their total outgoings. Any variability in earnings or gap in the income stream could leave tenants unable to afford their rental payments.
Agents need to check both the amount of earnings and the stability of the income source. Employment checks are crucial. Details can be verified via employer references, payslips and bank statements.
It is also a good idea to calculate the tenant’s debt-to-income ratio. If the tenant is paying back credit card debts, loans or is servicing other borrowing, check the impact of this to ensure they can still meet all their obligations.
While there are no hard and fast rules, the applicant’s age can give an indication of their priorities. According to HMRC data covering the period from 2021 to 2022, around 4.6 million properties are now being rented in the UK. Only 11% of tenants are aged 44 or over. Younger tenants may be more likely to prioritise location and amenities, while an older tenant may prioritise stability and security. Does the applicant’s lifestyle fit with what the property offers? If not, are they right for it?
In London, the average rent is £2,480 per month, compared to £1,172 outside of the city. Agents need to ensure that the tenant can afford the rent for the specific location they are interested in, and possibly make recommendations of alternatives.
Additionally, agents should consider the tenant’s preferences. Do they want to be close to their work, have easy access to public transportation or need schools, open spaces or other amenities?
Credit Score and history
A tenant with a good credit score is more likely to pay their rent on time and have a history of meeting their financial obligations. Reports can be obtained from a specialised credit reference agency, which will include details of any late payments or defaults.
Some think that tenant will automatically have a poorer credit score than, say, a homeowner. But a tenant who has been renting consistently with no issues, will not find renting detrimental to their credit score.
References and background checks
Agents should consider adding background checks when they ask for references. These can cover previous landlords, employers and personal references. Speaking with previous landlords can provide valuable information on the tenant’s rental history, including their payment habits and any issues that may have arisen.
Finding the stand-out tenant
Agents who put the effort in can find the right tenant, but there’s a growing trend for tenants to take proactive steps to secure the right property.
- Offer to pay a higher rent, demonstrating their commitment to the property and a willingness to invest in it.
- Request a longer rental period so that both landlord and tenant enjoy stability.
- Submit a CV detailing their employment history and financial status.
- Video themselves to provide the landlord with an insight into their character and lifestyle.
- Treat the viewing as an interview and start to build a positive relationship with the agent or landlord.
Do the checks, feel the benefit
There’s a lot for agents to think about when finding the right tenant, but it is worthwhile putting the extra effort in. When there’s a good fit between landlord and tenant, there are far fewer issues, and all parties are happier. The agents who are diligent and professional in this challenging market are the ones whose businesses will thrive.