The importance of high quality referencing

It is now over two months since the introduction of the ban on fees charged to tenants, leaving letting agents with the prospect of having to change their operations to survive the market.

Since the introduction of the ban, the lettings landscape has seen various new providers claiming they can eliminate these costs or combine them with other services. Perhaps they can. However, in the case of referencing, there’s strong evidence to back up the argument that this is one area which should not be done ‘on the cheap’.

Tenant referencing isn’t straightforward, despite what some believe. If every tenant’s circumstances were similar, if they were always open and honest, and if their financial means were easy to validate, then maybe tenant referencing could be done via the press of a button.

A referencing check is the ‘first line of defence’ for a landlord. Tenant referencing is relatively inexpensive, certainly compared with the cost of insurance. Saving a few pounds and risking a less than thorough investigation makes no sense. And, if the agent who responds in this way fails to provide this basic duty of care to their landlords, why would a landlord then value their service?

HomeLet are the UK’s biggest tenant referencing company, having referenced more than ten million prospective tenants throughout their twenty-five year history. In a recent survey with over 3,500 landlords about their past tenant experiences, nearly half disclosed that they had experienced major problems with a tenant.

Those landlords cited that issues included illegal activity, damage or negligence of the property and subletting without permission. The most popular problem, as disclosed by nearly a third of the landlords surveyed, related to late or missed payments of rent.

Additionally, of concern, nearly 10% of landlords surveyed admitted to still skipping on referencing altogether - with many commenting that they simply rely on an informal meeting and their own judge of character. However, the process of thoroughly referencing a potential tenant isn’t just a case of gaining a sense of someone’s personality. Referencing checks aren’t investigating moral compass, they are designed to carry out a wide number of checks including past history and financial ability in order to provide information on the tenants' suitability and ability to afford the required rental amounts.

Another growing issue in the lettings market is the incidence of fraud in tenancy applications. Whilst it’s still by no means the norm, it’s certainly becoming increasingly regular and the deception increasingly elaborate - high quality referencing, once again, can assist.

Perhaps it’s not surprising. Rents have risen gradually over a long period; incomes haven’t kept pace and home ownership is a distant dream for many. Getting a tenancy at almost any cost drives some to extraordinary effort.

Most alarmingly, the repercussions of a ‘bad apple’ tenant getting through their referencing checks will always come back to hit the landlord hardest – something which most landlords don’t realise the full extent of. Firstly, the cost of evicting a tenant is not only expensive, it’s a cost which is rising constantly – in fact, tenant eviction costs have increased by a staggering 225% since 2013.

Add to that, during 2011-2017 the Ministry of Defence closed 226 courts across the UK, meaning fewer courts to process eviction cases, and longer waiting times to remove tenants as a result. As a landlord waits for a tenant to be removed, they not only miss out on monthly rent payments, but are totting up a legal bill to cover the eviction process for when that tenant has eventually gone.

Suddenly, the prospect of paying for good quality referencing doesn’t seem like such a stretch.

*Vicky Quinn-Campbell is Head of Sales at HomeLet, part of the Barbon Insurance Group