As a landlord, rental income is the beating heart of your business. Ideally, it should cover all of your outgoings and leave you some profit on top, so it’s your priority to have a tenant who pays their rent on time and in full every month - particularly if you have Buy to Let mortgage payments to make yourself.
Having a void period where the property is unlet is bad enough, but, in our experience, any voids are usually brief. What’s much worse is having a tenant who falls into arrears because they either can’t or won’t meet their rent obligations. If it becomes necessary to evict them, the process can take many months – especially if they resist - and could leave you considerably out of pocket.
The good news is that tenants falling into serious arrears is rare - particularly if your property is let and managed by a qualified ARLA agent. If we are fully managing your property, we take the following steps to minimise the chance of it happening to you:
Make sure the tenant is properly referenced
The first step we take is to be as sure as we can that your tenant can afford the monthly rent and doesn’t have a track record of not meeting their financial obligations. Here are three key referencing actions we take:
- Ask for 3 months’ bank statements. These show the tenant’s regular income and outgoings and gives us a good idea of whether the rent is affordable for them.
- Carry out a credit check. A standard credit report will tell you whether someone has defaulted on their credit obligations and if they have any county court judgments (CCJs) against them.
- Take references. If they have rented before, we ask their previous landlord to confirm whether rent was always paid on time and in full, and if they would be happy to let to the tenant again. We may also contact their employer for a reference, to confirm (a) their role, (b) that their employment is expected to continue, and (c) their take-home pay.
Ask for a guarantor
Sometimes a potentially great tenant simply can’t provide the required proof of income, such as students or people who have just started a new job. And, as we’ve seen through the pandemic, tenants working in certain industries might be more vulnerable to losing their job through no fault of their own. In any of these cases, it’s reasonable to ask for a guarantor, who will accept responsibility for making the rent payments if the tenant defaults.
Help your tenant keep their bills down
Having a property that’s energy efficient and cheaper to keep warm is likely to be attractive to tenants – and the lower you can keep their monthly bills, the more likely they are to be able to keep making their rent payments in full. Although the law currently requires rented homes to have a minimum EPC rating of ‘E’, government proposals are to raise that to ‘C’ in the next few years, so it’s worth taking steps now to improve the quality of your property’s insulation: walls, floors, windows and roof.
Also, if the property doesn’t already have a smart meter and you are the bill payer, then you can arrange to have one installed. However, if your tenant pays their own energy bills, do encourage them to have one fitted, as it’s their right as the bill payer to do so. It’s free and will help them keep track of and control how much energy they’re using. Visit the Smart Energy GB website for more information.
Communicate well with your tenant
Having a good relationship with your tenant is one of the keys to a successful tenancy. As managing agents, we maintain regular contact with all our tenants, as we know the better your line of communication, the more likely your tenant is to contact you if they’re having trouble paying the rent.
Act quickly if a rent payment is late
We have systems in place for checking that our landlords’ rent reaches our client bank account on the day it’s due. If it’s not received, we contact the tenant right away. More often than not, it’s a simple mistake by the tenant or a delay on the part of the bank. If the tenant has just had a temporary hiccup in their cash flow, we will agree with them when the payment will be made. However, if it seems to be a longer-term financial problem or the tenant stops responding, we will consult with the landlord and usually begin eviction proceedings.
Use a professional letting and managing agent
The best way to ensure your property is let to someone who will be able to pay on time and in full every month, is to use an agent such as Reeds Rains. We have efficient systems and procedures in place to find, manage and collect rent from tenants – essentially handling all the above points on your behalf. Our experienced team can easily judge whether a tenant is appropriate for your property and will act quickly if there are any issues with payment.
Finally, it’s worth considering taking out insurance to protect your rental income if your tenant falls into arrears. If you are thinking about enquiring about insurance cover for a new tenancy our 'Rent Protection and Legal Expenses' insurance*, provided by Aviva, covers 100% of your rent for up to 12 months (to a maximum of £35,000) and provides up to £15,000 of legal expenses if you have to go through the eviction process to regain possession of your property*. The relatively small monthly cost offers very good value for money and gives you peace of mind that you won’t be left out of pocket if your tenant does default.
£65m of Government funding to support struggling private tenants
On 23rd October, the Department for Levelling Up, Housing and Communities (formerly MHCLG) announced that £65m of funding would be given directly to local councils to help PRS tenants who have accrued rent arrears because of the pandemic.
If your tenant has struggled financially as a result of the pandemic, it’s worth advising them to contact the council to see whether they might be eligible for some financial support. There are no blanket criteria – it’s down to each council to decide who receives funding.
If you’d like to discuss any aspect of finding and managing a tenant or protecting your rental income, just get in touch with the team in your local Reeds Rains branch.
*Subject to policy terms and conditions. Reeds Rains may receive a referral fee from insurance providers for recommending their services. You are not under any obligation to use the services of the recommended providers. The insurance provider may be an associated company of Reeds Rains.