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Tenant Referencing Is Crucial For Landlords

Tenant Referencing Is Crucial For Landlords

Most tenants are complete strangers, who as a landlord, you may meet once or twice before granting a tenancy agreement to or handing over the keys to the rental property.

If using a good letting agent, the landlord may not even meet the tenant until after they have moved in.

This leaves the landlord with a few questions, including:

  • What are the tenants like?
  • Have they rented previously?
  • Have they always paid their rent on time?
  • Why do they need the property?
  • Do they look after their home?

As a landlord, if you were approached by a person on the street and asked for the keys to your rental property on the promise that a stranger would look after it, would you hand over the keys?

Surely the answer from experienced landlords and clued up property investors should be a resounding NO!

But the scary thing is some inexperienced landlords are not far off doing this exact thing when renting out property to tenants.

Tenants can potentially cause expensive problems that can cost even more to put right and the risk of this increases if landlords haven’t vetted them properly.

As much as everyone would like to live in a world where people can be taken at their word, in terms of their character and reliability, unfortunately the truth is somewhat different. The unfortunate reality is that no-one can be taken at face value and it’s advisable to have a reputable tenant referencing company carry out checks on all potential applicants, which will include credit checks, employer references and previous landlords’ references.

Tenant referencing should be completed before offering a tenancy agreement or allowing tenant’s to move in.

The credit check will detail the tenant’s credit profile via credit reference agencies to determine any adverse history such as missed payments or CCJs (County Court Judgements).

A tenant with a low credit score may not be all bad! They may have had problems in the past making payments on finance, or they may have been assessed by the credit reference agency as a risk because of difficulty making payments.

A low credit score doesn’t necessarily mean that you are dealing with a bad or unreliable tenant – an example would be students who have little or no credit history and as such may possess a bad score.

Legal4Landlords offer specialist services for landlords and letting agents

Legal4Landlords offer specialist services for landlords and letting agents

In situations like this, as long as the other aspects of the tenant reference are adequate, a guarantor can be sought for the tenant. However, the guarantor will have to undergo the same referencing procedure.

The tenant reference should detail

  • The performance of the tenant during the course of their previous tenancy.
  • Payment history
  • The condition of their previous rental property at exit
  • Whether their previous landlord would rent property to them again

This should help the new landlord get a good indication of the applying tenant’s track record.

The employment reference determines

  • Tenant’s employment status
  • How long they have been employed
  • Salary.

This information will enable the landlord to determine if their wages are enough to cover the rent, bills and associated living costs and also the stability of their employment, i.e. whether they are permanent or temporary employees.

Even tenants in long-term employment could be at risk of redundancy in the current economic climate, and landlords should take advantage of rent guarantee insurance, which protects the landlord should the tenant default on their rent.

It is advisable for landlords to offer a 12 month contract (AST) with a 6 month break clause to allow for flexibility in case things do go wrong during the tenancy.

One month’s rent should be taken in advance from the tenant along with a damage deposit equivalent to 6 weeks of rent.

This allows for a financial buffer in case the tenant fails to pay the last month’s rent at the end of the tenancy or if there is damage to the rental property.

Tenant Referencing by Legal4Landlords

Tenant Referencing by Legal4Landlords

Don't become a rogue landlord

Don't cut corners when renting out property

The downturn in UK property valuations has lead many existing homeowners, some of whom are desperate to sell up, to consider alternative ways to cash in on their current property, without having to sell it below their expected valuations.

A fairly noticeable proportion of these vendors are choosing to become first-time landlords, rather than settling for a below market offer.

The prospect of more reluctant or accidental landlords entering the private rental sector (PRS) is not such welcome news for the UK rental property market. Ill advised or inexperienced landlords often make mistakes or cut corners in order to preserve cash flow or increase rental yield.

Any bad business practices can be perceived by some to be the actions of a rogue landlord, prompting Legal 4 Landlords to issue some general guidance advice for new, first-time and inexperienced landlords

All landlords need to comply with the current UK regulations and the following points are highlighted as essential:

• All prospective tenants should be thoroughly referenced and credit checked by a reputable agent, to ensure financial ability to pay the rent and gain an insight into the suitability and character of the tenant.
• Provide a proper Assured Shorthold Tenancy agreement (AST) signed by both Landlord and the tenant, outlining the length of the tenancy, amount of rent, date rent is due, and details of which government deposit protection scheme is to be used.
• At the start of the tenancy walk round with the tenant and conduct a detailed inventory describing the condition of all the fixtures and fittings of the property in detail, along with the furnishings.
• Gas appliances must be checked annually by a registered Gas Safe engineer and the landlord must provide the tenant with a copy of the Gas Safety Certificate (CP12).
• The landlord should take out comprehensive Buy-To-Let or Landlord insurance to protect their property asset.
• All repairs should be fixed promptly and only use reputable tradesmen that you know and trust to tend to the property, this is extremely important if emergency repairs must be done at short notice.
• If using a lettings or property management agent remember to conduct Due Diligence on them thoroughly and make sure as a landlord that you are happy with their terms and conditions before appointing them.

There are currently a record number of people searching for suitable rental properties in the UK, meaning that would-be landlords should have no problem finding a willing tenant, providing their properties are fit to rent.

New and first-time landlords should note that letting a property can be stressful and time consuming, as well as a very financially and personally rewarding experience, and is an effective way of providing an additional income.

Prospective landlords will need to remember they are effectively starting a business that centres on property and must remember to treat it as such.

Legal 4 Landlords are the UK’s fastest growing Tenant Eviction specialists who also offer a wide range of useful services for landlords including Tenant Referencing, Landlord and Tenant Insurance policies and Rent Guarantee insurance.

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Landlords See Rental Profits Fall

UK PRS Rent is Now More Affordable

Rents have fallen for the first time in 10 months as landlords look to keep homes occupied over Christmas, but rents in some parts of the UK have bucked the downward month-on-month trend.

The typical rent in England and Wales dropped by 0.4% to £717 a month in November, the first month-on-month fall since January.

But despite the seasonal decline, the average rent for a property is still £25 a month more expensive than it was this time last year.

Rents have risen in all regions over the last 12 months, with London and the South East experiencing the fastest rises annually at a rate of 4.2%.

The typical monthly rent in London stands at £1,033 and in the South East it is £741.

Landlords are looking to avoid having properties vacant over the Christmas period, and are being less aggressive with rental pricing as tenant activity slows in the run up to the New Year.

Across the UK, the limited supply of rental accommodation means there will still be strong upward pressure on rents in the early part of 2012.

Rental demand has remained high as would-be buyers have been unable to get onto the property ladder, faced with having to raise large deposits or finding the terms of mortgage deals too restrictive.

Rents in some parts of the UK bucked the downward month-on-month trend

• London – Rents up 0.3%
• Wales – Rents up 1.2%
• Yorkshire & Humber – Rents up 1.2%
• West Midlands – Rents up 1%

The East Midlands saw the biggest drop over the month, as PRS rents fell by 2.2%

The monthly index, based on analysis of more than 18,000 properties across England and Wales, also showed that tenant finances improved slightly in November despite the squeeze on household incomes, with 9.3% of all rent late or unpaid, compared with 10.1% in October.

Even though a large proportion of current renters would be credit-worthy buyers were they able to provide a big enough deposit to satisfy tight mortgage lending criteria. These tenants are typically financially sound, and less likely to experience payment issues.

UK landlords without Rent Guarantee insurance can expect rental arrears to creep back up next year due to challenges to the economy generally, the threat of the Eurozone crisis and unemployment.

With the cost of moving into a home set to increase for first-time buyers (FTB) when the stamp duty holiday ends in March 2012, the strain on the UK Private Rented Sector (PRS) will be greater than ever, and the cost of renting will continue to increase as the new year progresses.

Legal 4 Landlords spokesman Sim Sekhon said: “UK landlords are in a strong position right now, however unless they take the appropriate steps to protect their rental properties and the income that they provide, that position will change as more regulation is introduced and the tightening of Government Fiscal policies begin to take effect in 2012.

Legal 4 Landlords know how important it is for landlords to protect their property assets. They have worked closely with providers to develop comprehensive Rent Guarantee and Insurance products for UK landlords.

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House prices in England and Wales held steady in November, with no change on a month earlier and prices down 0.7% on the year, at an average £220,043.

According to the LSL/Acadametrics index, the only region recording annual price growth is London, where the value of the typical home has risen 3.1%.

November also saw an improvement in activity, with 4.5% more homes changing hands than this time last year.

LSL commercial director, David Brown, points out that static house prices don’t mean property values are standing still.

He explains: “For buyers looking to get onto the market, 0% price growth means that in real terms property is becoming more affordable. With inflation running at 5%, the real cost of property is getting smaller and smaller, which is good news for buyers and mortgage borrowers alike.”

According to Acadametrics chairman, Dr Peter Williams, the housing market in England and Wales looks as if it will end 2011 in better shape than expected.

As for the future, Dr Williams believes the outlook for transactions might weaken slightly in 2012, in the light of reduced confidence, tighter household budgets and restricted lending.

A new report is urgently calling on the Government to regulate residential Letting Agents to the same standards as Estate Agents and reckons that UK tenants are being ripped off by cowboy agents in the booming PRS rental market.

The Resolution Foundation, an independent think tank which focuses on lower income groups, says tenants are paying significant upfront costs, whilst agents’ fees are variable and there is a lack of transparency around charges.

The organisation carried out a mystery shopping exercise of 25 unnamed letting agents in three cities – London, Cheltenham and Manchester. It found the range and type of fees charged varied enormously.

For example, administrative fees ranged from £95 to £375. Total upfront costs (including deposit, admin fees and rent in advance) for a one-bed property in London were £2,166, around double those charged in Manchester (£1,028) and Gloucester (£1,094).

Just two of the letting agents displayed the costs of renting on their websites and many renters only discovered charges after they had decided to rent a property.

Average deposits for a one-bed property ranged from £487 in Manchester to £1,099 in London.

Many tenants reported difficulties when moving within the private rented sector as they had to hand over a new deposit before they had got their old one back.

Resolution says its findings are particularly relevant given the growing number of households forced into renting for the long term. In 1988 only 14% of low to middle income households aged under 35 were living in rented accommodation, but by 2008 it had tripled to 41%.

The report points out that unlike estate agents, letting agents are unregulated and there is no compulsory membership of an ombudsman service. The report is also backed by the Property Ombudsman.

The Resolution Foundation is calling for:

  • Letting agents to be regulated to the same level as estate agents, so that unscrupulous agents can be banned;
  • All agents to be signed up to an ombudsman service giving redress to tenants;
  • The ombudsmen’s codes of practice to stipulate that agents must display all charges to tenants and landlords on their website and in adverts in a way that is easily comparable across agents;
  • The Government to consider ways to make it easier for tenants to transfer deposits between landlords when they re-tender for the tenancy deposit protection schemes in 2012.

Vidhya Alakeson, Resolution’s director of research, said: “The lack of regulation in the exploding private rented market is of growing concern. We need more transparency so tenants at least know what fees they’re facing and to help create a more competitive market. Given that an increasing number of families have no option other than to rent long term, we need to question why letting agents are not regulated to the same degree as estate agents.”

Christopher Hamer, The Property Ombudsman, said: “This report emphasises the growing importance of the lettings sector for people seeking a home to live in. The Government does not see regulation of the sector as a priority and I, therefore, welcome the recommendation of this report that all letting agents should be required to be registered with an ombudsman scheme so that, at least, landlords or tenants can gain redress where they have been disadvantaged by an agent. Providing clarity and transparency of fees is also very important. As more and more people become tenants or landlords, these measures would assist them in fully understanding the commitments they are taking on and enable them to challenge the agent if anything is unclear.”

Ian Potter, operations manager at ARLA, said: “It’s vital that consumers have full confidence in lettings agents, and the industry must respond to their concerns about bad practice. That’s why in the absence of regulation, we developed our own licensing scheme. All licensed ARLA member letting agents must be covered by a client money protection scheme and hold professional indemnity insurance – which means consumers are protected against negligence. They must follow our strict codes of conduct and have a certain level of training. Ultimately this means that, should something go wrong, there are protection mechanisms in place. We would therefore always advise that consumers use an ARLA-licensed lettings agent. Fees will vary from region to region and will depend on the specific services offered by an agent. However, for landlords and tenants alike it is important to obtain clear, written information from an agent about exactly which services their fee includes – and whether there are likely to be any further costs in the future. This means that, should a landlord or tenant feel the fees were unclear, they can lodge a complaint with ARLA or utilise the Ombudsman Scheme membership, which all ARLA licensed agents are required to hold.”

Legal 4 Landlords spokesman Sim Sekhon said “Landlords who choose Letting Agents to manage their properties need to ensure that the agents act in a professional manner at all times, working positively for both the landlord and tenant. Landlords can take out insurance to protect their property from a bad tenant but there is currently no protection from a bad lettings agent “.

The full report is called Renting in the Dark: creating a lettings market that works for tenants, by Louisa Darian. It forms part of the Resolution Foundation’s programme of work on housing

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Buy To Let is expanding in the UK

UK PRS sees Strong Growth

The Council of Mortgage Lenders’ (CML), has noted that UK Landlords, Property Management Companies, Lettings and Estate Agents are currently seeing strong rental returns within the UK PRS, and this income improvement is likely to continue for the foreseeable future as the already high demand for private sector rented property continues to increase and many financial experts have also suggested the UK Private Rented Sector (PRS), will keep expanding over the next few years

The reasons behind the strength of the private rented sector include a shortage of social housing and the difficulty of would-be first-time buyers to be able to afford a home.

The Council of Mortgage Lenders noted that the UK Buy To Let sector offers, people who can’t buy residential property, multiple home options and some degree of quality of choice, whilst they save up to get their own foot on the property ladder.

The CML reported that the UK Private Rented Sector has been expanding rapidly over the last two quarters, with inward net migration one driver behind its growth in recent years, while some householders have decided to move into a leased property in order to rent theirs out to make extra money. A smart financial move, so long as they have remembered to get the correct permissions and suitable landlord insurance.

Many people are also choosing to rent property in the Private Rental Sector rather than becoming an UK home owner-occupier because it gives them more freedom and flexibility.

The fundamentals of growth in the number of UK households, combined with constraints on access to the owner-occupied and social housing sectors in the foreseeable future, suggest that over the next few years, demand for privately rented accommodation will remain strong and continue to grow.

The demand for UK Buy To Let properties is so strong at the moment that it is outstripping supply at an astonishing rate.

UK landlords could think about renovating unoccupied / empty properties or taking on repossessed homes in order to extend their property portfolio’s, to take advantage of the record numbers of people looking for rented accommodation.

Such prospective tenant demand means that UK landlords have the enviable position of being able to choose the best prospects for their properties, by means of thorough tenant referencing. Landlords are able to determine the financial backgrounds of all applicants prior to granting them an AST.

According to The Residential Landlords Association’s news service,rising numbers of tenants in London are failing to pass their reference checks because they do not met the salary requirements being demanded as rents soar.

Instead, they are having to use guarantors who do pass the checks or put down up to a year’s rent.

Most credit referencing companies now insist that a prospective tenant earns around 30 times the monthly rent, or two-and-a-half to three times the annual rent. A tenant’s savings are not taken into account.

Rents have risen by as much as 20% in parts of London, according to agents Ludlow Thompson.

Lynn Hilton, partner for residential lettings at Cluttons agents, said that one in five tenants is now failing a credit referencing test. Four years ago, fewer than one in 20 failed.

Of those who fail, around half are opting to fork out a bigger deposit instead – up to a year’s rent upfront – or produce a rent guarantor whose financial ability satisfies the referencing firm.

The problem of tenants failing the checks is even catching wealthier individuals because, for example, they do not have assets listed in this country for tax reasons, or while they have savings, they do not have jobs.

Join the RLA today!

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