Credit checks on tenants are the most effective weapon a landlord has against tenants who are at risk of defaulting on their rent payments. Most of the time, my tenants pass credit checks and all is well—they move in to one of my properties and everyone is happy.
However, with the ever-increasing rise in average monthly rents, the numbers of people who are failing to pass the credit reference checks is also rising. This is a particular problem in London where the average rent has soared in recent months. According to recent figures, as many as 1 in 5 tenants are failing credit checks, which is a sharp rise from a few years ago when it was only 1 in 20.
As the recession continues to bite further, credit reference agencies are insisting that would-be tenants have a salary that is three times the monthly rent, or two and a half times the annual rent, which is quite a hefty figure if you live and work in London. And, somewhat surprisingly, even tenants with lots of cash are being caught out by the rigorous credit referencing checks if they have no UK assets, or are not currently employed.
How can landlords work with a tenant who fails a credit referencing check?
Obviously you can turn them away, but if nobody else is queuing up to move into your property, this might not be the right decision. An alternative course of action is to ask for a much larger deposit, or request that the tenant use a guarantor for their tenancy agreement, so if they do subsequently default on the rent, the guarantor is responsible for rent arrears and/or damages/losses.
