The role of referencing in Scottish lettings
Good letting agents reference all applicants, even viewers known to their landlord clients. We recommend carrying out referencing even in non-typical circumstances – like letting a property to landlord’s relatives or, in case of HMO lettings, like letting a property to a group of students including the landlord’s family members and their high school friends. In the latter case, referencing is very important – do the landlords know if guarantors of their son’s or daughter’s flatmates are financially viable? The only exception is moving tenants between properties managed by the same agency. Then the full referencing checks will not be necessary, but income and credit checks should be done as a minimum. While doing a proper referencing takes time and may cost a significant amount of money, skipping this part may lead to letting a flat to a tenants that cannot afford the rent, or were declared bankrupt, or caused significant damage to their previous accommodation. Such alternatives are simply not acceptable. Please bear in mind that Scottish Private Residential Tenancy agreements favour tenants, not landlords or their agents. Furthermore, it is quite difficult and costly to evict tenants who stopped paying rent or caused other significant problems.
- Checks done on applicants: All landlords, Edinburgh letting agents and referencing providers should verify IDs, income, accommodation references, addresses and credit reports of all applicants before signing a lease.
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IDs: (For example, passports; driving licences ; national EU IDs and biometric residence permits for foreign nationals), are checked to verify the identity of applicants
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Proof of address: Like a utility bill, council tax statement, bank statement issued in the name of the applicant or their guarantor. Name on the proof of address should match the name of the applicant or their guarantor. The address should match the most recent address in the credit report of the applicant or their guarantor. Proof of address makes identity checks more robust and confirms that the credit report was issued correctly.
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Income: The general rule is that the combined gross income of all applicants should be in excess of at least 30 times the rent or the share of rent in case of multiple occupiers. For example: if the rent is £800pm, the combined gross income of all applicants should exceed £24,000. Failing that, the letting agents or their referencing provider should ask for guarantors or payment of up to 6 months’ rent in advance. The landlords may specify that they do not accept guarantors or advance payments. In the case of salaried applicants, income checks are quite easy and consist of checking payslips and work contracts. The referencing becomes more difficult if the applicants are on part-time contracts with a certain number of guaranteed hours (let’s say 25 per week), but regularly work overtime that brings their total hours above 35 per week. Sometimes, the applicants are not aware themselves that in fact they have a part time contract and any additional hours are not guaranteed. The worst-case scenario is a zero hours contract – then all hours are technically overtime. Edinburgh Letting Centre normally considers only the guaranteed hours; it means that employees on zero hours contract will definitely need a guarantor. Besides checking the number of hours, we recommend asking if the applicant is not in the process of leaving their job or if they have not been just dismissed from work. Such information makes checking the exact amount of gross salary pointless. If the applicant has just been offered a new job or has just started working for a new employer, the letting agent or the referencing provider should be checking the new work contract, not the previous payslips. It is a new salary that counts, not the previous income. If that is the case, the landlord should be notified, as they may ask for further assurances if the applicant has a probationary period.
- Credit reports : There are three major credit report providers in the UK: Experian, Equifax and Credit Karma. Other countries may have different arrangements, for example government agencies or credit bureaus issuing such reports. Such bodies are usually associated with ACCIS (Association of Consumer Credit Information Suppliers) and / or CDIA (Consumer Data Industry Association). Credit reports show if the applicants were paying off their debts in a timely manner and generally made reasonable financial decisions. The landlords have a right to know if prospective tenants, even the ones with good jobs, had financial difficulties in the past, did not pay some of their bills or are up to their eyeballs in credit card debt. Credit reports show past addresses – again, this is valuable information showing how often the applicants have been changing flats. Everything else being equal, the landlord may prefer an applicant who stayed 3-4 years at one address to another applicant changing flats every 6 months.
- Accommodation references : Respectable letting agents verify the information provided by the applicant. A tenant with history of rent paid on time every month and no excess wear and tear will be preferable to an applicant with a record of rent arrears, whose property had to be professionally cleaned on check out. Edinburgh Letting Centre asks the current landlord or the letting agents if the tenant has had any rent arears, what was the length of the lease and whether they would rent to the same tenant in the future. Good letting agents should also ask about excessive wear and tear noticed during periodic inspections and damages on checkout, but if the tenants have just applied for a new flat, the final inspection would not have been done yet. If that is the case, it is worth asking the previous letting agent or the landlord for an accommodation reference.
Sometimes obtaining a valid accommodation reference is tricky. Let’s think about a case of undergraduate students moving out of their family homes – how impartial could a dad’s or mum’s reference be? The same goes for applicants who have been subletting a room in their friend’s property. If that is the case, the landlord can ask for an increased deposit, which is currently capped in Scotland to 2 months of rent.
Guarantor referencing
- There is no need to obtain an accommodation reference, as we are not really interested in the guarantor’s rental record.
- The income criteria is stricter – the guarantors should document a gross annual income at least 36 times higher than the rent or the share of rent they guarantee.
- A credit report is equally important.
- The guarantor should be made aware that the agreement is for the duration of the lease.