Finding a new tenant is always nerve-racking for landlords. It’s a step into the unknown. Although the vast majority of tenants are good eggs that pay their rent on time and treat the property as a home, there’s always the chance of encountering a rotten one. And when this happens, the letting agent is left with a large omelette on their face.
The purpose of tenant referencing is obviously to crack this problem, or to at least minimise breakages. Although some landlord’s try to interview applicants before handing over the keys, and 11% snoop on their social media accounts, referencing remains the best method available to ascertain a tenant’s suitability.
There’s just one problem though: tenant checks aren’t fool proof. The process can take up to a week or more in some circumstances. What’s more, it’s possible for potential tenants to outwit agents and hoodwink homeowners by submitting bogus documentation. One wonders, therefore, whether digital referencing might be better?
Traditional methods haven’t changed much in decades. Applicants provide some proof of identity – usually a passport, driving licence, or birth certificate – and then go through the usual credit checks. This bit is usually straightforward. But thereafter it’s possible for Machiavellian candidates to mendaciously manipulate the process.
Take references from previous landlords, for example. There’s no way to tell if these are fiddled or fraudulent. And then there’s the correspondence from employers confirming an applicants’ income. Yes, checks are made to ensure the email came from a bona fide business address, but was the sender really HR? Or a collaborating colleague?
Furthermore, even if all the details provided are legitimate, traditional referencing merely presents a snapshot in time. Bank statements demonstrate that an applicant can afford the rent at that particular moment, but they don’t reveal whether the tenants will be working at the same company, and earning the same salary, in a year’s time.
There are other problems too. Traditional tenant checks are clunky, time-consuming, and cost money. Applicants must print out forms, provide payslips and bank statements, take copies of supporting documents at their own expense, and then send them to the letting agent. Referencing companies also have overheads. And since the Tenant Fee Ban, these fees can no longer be passed on to applicants.
However, for all its flaws traditional referencing still remains the preferred route for most letting agents. Why? Because property is all about people and the industry values the personal touch. Digital referencing seems too detached and many agents doubt whether it’s thorough enough.
Although digital tenant referencing isn’t perfect yet, the technology is constantly improving. Greater automation across most industries is inexorable and letting agents won’t be immune. Indeed, technology is already changing the property industry in other areas so it is logical to assume that it is only a matter of time before agents embrace digital referencing and try to make it work.
Ultimately, digital referencing should save everyone time and money. Tenants will find it easier to upload documents that support their application digitally, and letting agents will find it quicker to access the references they need. What’s more, once an applicant has been verified, it’s easy to arrange additional services like Rent Guarantee, insurances, and loans.
The key to making all this work, of course, is Open Banking. This makes a prospective tenant’s financial data, their regular incoming payments and more importantly, their spending habits available to approved parties via their bank. Accessing this information will give letting agents and landlords a far more detailed breakdown of the applicant’s financial stability. It will also reveal if they have any payday loans, on-going credit repayment plans or gambling habits that might impact their long-term ability to afford the rent.
Whilst some applicants might baulk at this perceived invasion of privacy, Open Banking actually makes a lot of sense. There’s no need to get their employer involved, for example, because the screening has already been done – on a computer screen.
So which is better?
Many letting agents prefer traditional referencing now but going digital will eventually improve tenant checks enormously. It will remove the traditional barriers that slow down the supply of all-important information, plus it will provide a much more detailed picture to help agents ascertain a candidate’s suitability. Even better, these checks cost far less than the traditional option and all of this detailed information will be available in an instant.
Once digital referencing is refined then it will benefit absolutely everyone – except for fraudsters or people with something to hide. We're afraid that if you own a 120 stone St Bernard, but the rental agreement says “no pets”, then those regular payments to The Plush Pup Grooming Company are bound to give you away.