Referencing
If you let a property through a letting agent it is normally their responsibility to take up references on your behalf. They may do this directly by writing to the tenant’s employer and previous Landlord or more often these days outsource it to a specialist referencing company.
A Letting Agent should not take your property off the market and reserve it for a particular tenant until they have a holding deposit in cleared funds. Once this is in place the agent will ask the tenant to complete a form giving all the relevant information they require to begin the referencing process.
Whether this is done in house or outsourced the very least that you should expect is a reference from the prospective tenant’s employer stating that the position is permanent and the level of their current salary. This will normally be supplemented by a reference from their existing Landlord (if applicable) stating that they are considered a suitable tenant and paid their rent on time. The employer’s reference is the more important of the two as it has been known for a Landlord to provide a bad tenant with a good reference just to get rid of them.
If the prospective tenant is self-employed the agent or referencing company should contact their accountant to establish their profit over the last 3 years. You should be very wary if the prospective tenant claims to receive part of their income in cash as there is no way of verifying this.
If the process is outsourced to a specialist company they will also carry out a credit check on the tenant. This will give you an idea of their credit history and should reveal if they have had problems in the past such as County Court Judgments (CCJs) or Bankruptcy Orders.
What you are looking for is some evidence that the tenant can afford to pay the agreed rent. Referencing agencies require the tenant’s gross income to be around 2.5 times the rent. This multiple should leave enough money for the tenants other outgoings.
If the referencing procedure is outsourced the specialist company will operate very strict criteria. Occasionally a prospective tenant will fail due to what could be termed a technicality. This may be because they recently changed jobs and took a holiday in between (classed as a break in employment) or they work on a rolling contract. In these situations the agent should inform you of the circumstances and give you the opportunity to make an allowance. In these situations it would be wise to meet the prospective tenant in person so that you can form your own opinion as to their character.
If you require some extra reassurance your agent could request copies of bank statements going back 6 or 12 months showing a pattern of earrings coming in and rent going out on a regular basis.
As a last resort you have the option of insisting that the prospective tenant uses a Guarantor. The Guarantor will be required to sign a declaration stating that they will pay your tenant’s rent if they default. The Guarantor will then be referenced using the same procedure.