A Complete Guide To Rental Reference Checks

Running Rental Checks for Letting Agents

Table of contents

  • Introduction

  • What is tenancy referencing?

  • Why is it important?

  • What does a tenancy reference check include?

  • Why might a tenant fail referencing?

  • Using a guarantor

  • What happens after referencing?

  • GDPR Compliance

  • Landlord Insurance & Rent Protection

  • How long does referencing usually take?

  • How much does it cost?

Thousands and thousands of people move into new rental properties every single day in the UK and the daily number probably goes into the millions worldwide!

One incredibly crucial aspect of moving into a new place is the referencing a tenant must go through in order to secure the tenancy agreement (this process is now a legal requirement in the UK!).

Homeppl is an expert at tenant referencing. In fact, we're on a mission to completely redefine the whole process. Whereas many insurance companies use tenant referencing as a loss-leading exercise to sell cover policies, we're alerting letting agencies to the devastating rise in tenancy fraud, providing them with the opportunity to maximise revenues by providing a greater pool of tenants and completely mitigating the prospect of reputational damage or financial risk from the outset by actually uncovering the true financial, behavioural and residential history of a tenant with pinpoint accuracy. This offers their landlords complete protection from the outset.

As such, we've written this guide to help you understand the process a little more.

What is tenant referencing?

Tenant referencing is the process of accurately profiling prospective tenants, and understanding their financial situation, behavioural patterns in previous tenancies, and residential and employment history to ensure that the tenant in question has the legal right to rent the property and can afford to do so.

This comprises several steps to gain and verify information from the tenant, which usually include employment status and income details. 

fraud detection during a UK recession

Why is it important

Rent referencing is an essential step for landlords as it gives them the opportunity to select the most reliable tenant and reduce the risk of having a tenant that may default on rent or damage the property. It's important to letting agents because they are ultimately responsible, in the eyes of landlords, for marrying up the right property with the right tenant. The reputation of letting agencies is essentially on the line.

All tenants over 18 named on the agreement must have completed a tenancy check as a legal requirement. Failure to conduct a right to rent check under the Immigration Act that was written into law in 2014 can result in hefty fines or even time in prison.

With technology becoming more and more advanced, and as the pandemic & the cost of living crisis has wreaked economic havoc, a seismic increase in the falsification of key documents in the referencing process has ensued. This is called tenancy fraud. 6% of tenancies end up in eviction because referencing companies are sloppy and allow these fraudsters to put landlords at risk.

OECD tenant referencing quoteHomeppl has created a unique technology stack that detects 100% of fraud to ensure that this doesn't happen. Tenant referencing ensures that the applicant is indeed who they say they are and that the details they have provided are honest and accurate.

What does a tenancy reference check include?

  • Proof of Identity and Identity Verification (Passport, for example)

With identity fraud at an all-time high and still on the increase, it is more important than ever to ensure that the tenant is who they claim to be and has a legal right to rent. Therefore tenant reference checks require two forms of identification, one of which must be a photographic ID (a passport or driving licence).

It is also crucial in verifying the tenant to have proof of address to ensure that the address given is correct.

  • Credit check

Running a credit check is vital in learning about the tenants' income and debt history. The check gives insight as to whether they make repayments on time on various loans and lines of credit they have out, have any outstanding debts, bankruptcy orders or CCJs (County Court Judgements) against them. They may also be required to provide bank statements or undergo open banking tenant referencing to verify their income. This is vital as it informs the referencing company of true affordability and whether they're likely to pay rent on time.

Unfortunately, insurance companies and tenant referencing companies have become lazy and totally reliable on outdated credit checks alone. This means that a vast proportion of renters who don't have a UK credit file, or a poor file, such as students, internationals, high net worth individuals are rejected as risky tenants. Homeppl's advanced tenant referencing technology is rewriting the system and approving far more tenants by uncovering their true financial validity.

Homeppl book a demo form

  • Employment or Income confirmation

In some cases, checks can also require a confirmation from the tenant’s employer to ensure their salary is what they claim it to be as well as an employer reference.

Their salary threshold usually sits at 2.5x the rent of the property. Furthermore, obtaining the tenants' national insurance number will check if the tenant is legally working in the country. When carrying out the checks it is also crucial to research and verify the company is active, trading and legitimate to detect any attempts of fraudulent behaviour.

They will most likely include the following:

  • References from previous landlords

These references are important as they reveal how the person behaves as a tenant, whether they pay rent on time or not, damage any property or default on payments. This is a brilliant way to understand the tenant and how they may behave in this tenancy agreement.

  • Right to Rent Check

This is a legal obligation upon the landlord to ensure that the prospective tenant has a legal right to rent in the UK. If these checks are not fulfilled the landlord may be subject to heavy fines or even a prison sentence.

  • Lifestyle profiling

Some companies or landlords may ask questions about the tenant's lifestyle to give an insight into how the property will be treated. As an extremely valuable asset, some landlords seek to investigate whether the tenant's lifestyle does not fit with their wishes.

  • Guarantor referencing (if applicable)

If the landlord requires a guarantor, guarantor referencing is essential in ensuring that the named guarantor is able to fulfil his legally binding obligations if the tenant defaults on the rental payments. This may well be a very similar process to the tenancy referencing checks as they are equally important to guarantee the rental income for the landlord.

Why might a prospective tenant fail tenant referencing?

There are numerous reasons why someone may fail a tenant referencing check. However, looking at the specific results is crucial as they may seem to be a perfect tenant but may have failed on a particular compromisable aspect of the check.

Failing a credit check

There could be loads of reasons someone might fail a credit check. Someone may have an active CCJ or be in considerable debt.

However, tenants may be rejected by a large proportion of tenant referencing companies simply because they haven't had the chance to build a credit score in the UK yet or they aren't on the electoral register of their current home. The industry rejection rate is around 30% leaving these types of tenants with a considerable vulnerability when renting. Homeppl on the other hand, have an average approval rating of 95% simply because we look much deeper.

Traditional referencing companies v Homeppl

They are a student who failed most checks.

For students, it is exceptionally difficult to pass these tenant reference checks as they are likely not to have built a credit score or be earning the ideal affordability requirement. Despite this, they may be able to afford the rent as they may receive student loans or financial assistance from family. In most cases, they will likely need a student rent guarantor.

student rent guarantor card

They could not meet the affordability criteria.

Although a prospective tenant's income salary may not pass the affordability requirement, usually 2.5x the rent, this doesn't account for any financial assistance they may receive from family or friends. Like students, it may work out that the tenant comes up slightly short on the affordability criteria and need a rent guarantor.

They could not provide proof of address.

A tenant's proof of address is vital in verifying they are who they claim to be, usually in the form of a utility bill. However, there are many reasons why someone who is completely legitimate may not be able to provide proof of address, such as not paying bills; therefore, it is possible to confirm their identity in other manners.

 They fail an adverse media check

Homeppl will run the tenant's history through an adverse media check, usually on tenants who are trying to enter expensive rental agreements to ensure there is no history of fraud, suspicious activities or connections to illegal groups and criminal units.

They get flagged for AML

Anti Money Laundering (AML) checks are routine in the world of financial services and products and again, ensure that the tenant is not trying to illegally launder money in the UK.

Using a guarantor

The requirement of a guarantor is entirely dependent on the affordability criteria of the reference check. Following the pandemic and the rent prices spiralling upwards in recent months, there has been a considerable increase in the requests for guarantors. It is now incredibly likely a tenant renting in the UK will be asked to produce one. Finding a guarantor can be extremely difficult, so Homeppl offers our Guarantid service for tenants.

What happens after referencing

After completing the tenancy referencing process, the landlord can decide whether to move forward with one of three main options.

  • Move forward with the prospective tenant's application and initiate the tenancy agreement.

This is usually a pretty fast and smooth process following the tenant's approval.

  • Request a Guarantor

The landlord may request a guarantor if they have doubts about the tenant's affordability or the referencing company may recommend this based on their own affordability criteria. Once a guarantor has been provided, guarantor checks will be run similarly, and if approved, the tenancy agreement will go into effect.

  • Reject your application and refund a deposit (if made)

Suppose the tenant has failed the tenant referencing process, and they are deemed unsuitable for the property. In that case, the tenant's application will be rejected, and any deposit made will be returned to them.

The process is usually relatively quick if the landlord chooses to move forward with the prospective tenant.

GDPR Compliance

Tenancy referencing checks collect vast and detailed information on prospective tenants and, therefore, must comply with the GDPR.

Landlord insurance & rental income protection

Although tenant reference checks are comprehensive, there is always a chance that a tenant may fall on hard times and miss rent repayments.

Whilst many insurance policies currently available to landlords will cover the rent on the occasion of rent arrears and defaults, there is usually a minimum cover charge and the bureaucracy involved with these policies can mean rent won't be covered for up to 12 weeks.

At Homeppl, we offer rental income protection, rather than insurance, for tenants who pass our tenant reference checks if they default on their payments. This guarantee can be executed on rental agreements from a minimum of £1 and we payout in the case of default the exact same day.

Why should landlords have to wait weeks for their rental income? There is no viable answer to that question. To read more about this rent protection, click here.

How long does a reference usually take?

Whilst a rental reference can take weeks at other companies, Homeppl try to complete a full credit risk assessment within less than 24 hours but can take up to between 1-2 days.

How much does a tenancy reference cost?

Companies boast tenant referencing checks from as little as £5 per check. These will be the bare minimum components such as the right to rent checks, a phone call with an employer, a credit check etc.

A Homeppl check costs £20 per tenant and this includes accurate document analysis, a company guarantee that 100% of any modifications and falsehoods have been uncovered, adverse media checks, AML checks, and the most accurate residential and financial assessment of a tenant that is currently available. A Homeppl check includes 150+ different verifications and tests to leave absolutely nothing about a tenant out of his/her rental profile. We utilise social, device and finanacial data enrichment, open banking, behavioural analysis and human intelligence to reach our decisions.

Landlords cannot charge the tenants for tenancy reference checks and the reference check cost will usually come as part of a service that a letting agent provides their landlords.

If you have any other questions about tenant referencing, visit the FAQs on our main service page or book a short technology demo to see how our service works in full.

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