You have a couple of options, but it all really depends on your own restrictions – with the property owner, the property management company, or your landlord insurance company.
Comprehensive tenant referencing will typically check some or all of the following:
- Affordability Calculation
- County Court Judgements (CCJs)
- Credit Check
- Right to Rent Check
Just because someone fails theirs doesn’t automatically mean that they won’t be a good tenant. At the end of the day it’s ultimately your decision, but a number of factors can limit the options that you have.
Option 1: Reject them outright
It’s never fun having to tell an applicant that not only have they failed their reference check, but the £300 referencing fee they paid is non-refundable…
This is the easiest option though. If you believe that you can “do better”, or if you simply don’t want the headache of fitting a square peg through a round hole, then you should continue to look for that perfect tenant that ticks all your boxes. You may have liked them, and thought they would be a good fit, but sometimes it’s just easier to move on. Better luck next time!
Option 2: Evaluate their financial situation for yourself
If you genuinely believe that you have chanced upon the perfect tenant, you need to understand why they failed their reference check. There may be a very good and, most importantly, forgivable reason for them to have failed. With many criteria on a reference check only accepting a “pass” or a “fail”, it can be hard to know whether the applicant failed their check on a technicality.
Maybe they were a day late on their rent payment once through no fault of their own, but the singular late payment was recorded and has forever tarnished their otherwise perfect payment record. If this is what they are claiming, and appears to be the only issue with their referencing, you could ask them to verify this by showing you their bank statements evidencing their rent payments each month on time and in full.
Credit referencing companies will typically require the prospective tenant to earn at least 30x the monthly rent amount (or 2.5x the annual rent amount) to test affordability. Savings aren’t usually taken into consideration and, for some, this is a strict rule. You may only be interested in letting to professional tenants with a regular income, regardless of how much they have in savings. But this rule also excludes retired tenants who may have significant savings from having previously sold their property, or even those who may have come upon a fortune and have chosen to take a break for working as a result.
A solution that might work in such situations is if the tenant is in a position to offer up advanced rent, to cover a few months (or the entirety of their expected) tenancy. Although this puts you in a vulnerable position once their “pre-paid” duration comes to an end and they continue with their tenancy. If you choose to go this route, you should see whether you can limit the tenancy agreement to a set term that the advanced rent covers.
What’s important is that you confirm with the prospective tenants how they plan to support themselves. Use common sense, and put their situation into context. If a husband and wife are jointly applying for a tenancy and one fails where the other passes with flying colours, perhaps it is the system that is assuming the rent arrangement is to be split equally between them.
Some young people and recent graduates may tick every other box, but just fail on the credit check for having too low of a score. A low credit score is usually due to a lack of borrowing. They may have a good job with a great salary, more than enough to cover the rent, and still have a low credit score just because they’ve never taken out a credit card or have never made any purchases on finance.
In some situations, it may be the parents that are agreeing to pay 100% of their child’s rent each month. If you have a student tenant, or a tenant on housing benefits, you can always request a guarantor. The guarantor will then be the one legally liable for the rent, as well as covering the costs of any property damage, if the tenant is not in the financial position to.
Another common cause for failing a reference check is when the check requires a written reference from your landlord and/or employer, and they don’t return it promptly. This is, of course, no fault of the applicant – but it can still lead to the applicant failing the check.
The purpose of referencing is to verify whether or not an applicant is suitable for the property. Sometimes, however, whether you choose to look past it or not, perfectly good tenants can fail their reference check on a technicality or misunderstanding.
That being said, your landlord insurance company may refuse to offer you cover such as Legal Expenses and Rent Guarantee Insurance if the tenant fails their reference. In most cases, the insurer will simply require a guarantor but it’s just something to bear in mind.