Tenant referencing has become an essential part of the lettings application process but if you clear away the many questions, checks and requirements, it ultimately boils down to one important point:  Letting agents want tenants who will pay their rent on time. 

While damage to property and antisocial behaviour (the other two reasons for tenant eviction following late payments) are relatively rare, rent arrears are a familiar challenge for many letting agents.

9% of tenancies experience problems with rent arrears

Industry estimates suggest that 9% of tenancies in the private rented sector (PRS) experience problems with rent arrears every year, which equates to roughly 400,000 households in the UK.

There’s no doubt that traditional referencing is useful in giving letting agents a certain level of insight into how well a tenant has behaved in the past – but, until recently, this was always a bit of a guessing game despite advances in referencing technology.

For example, an agent can check their prospective tenant’s job status, credit score and previous tenancy history but these are only indications of good behaviour, and not a robust guarantee.  This data can also take days to pull together.

The next level in tenant referencing

There is now a way to drill down to a deeper level of historical data regarding new tenants more quickly, and it comes from new Open Banking technology. 

The EU-inspired Open Banking initiative, which was launched in January 2018 in the UK, enables tenants to allow any third party of their choosing to ‘read’ their bank accounts for specific payments, such as rent, without putting personal data at risk. It’s fast too.  A report on a tenant can be created the same day it’s requested.

If you’re wondering where the incentive is for tenants to sign up to the initiative, Open Banking generally can help tenants improve their credit rating by reporting their rent payments to credit referencing agencies (such as Experian), who then add the payment record to credit profiles. 

By its very nature, those tenants who are keen to use Open Banking for rent reporting are also more likely to continue meeting their rent commitments to keep improving their credit status, too.

A range of services have adopted this technology but the longest established is CreditLadder, which now reports rent totalling over £125 million.

“Rent reporting is a game changer for the private rental market because it enables letting agents to identify regular rent payers, can make the referencing process easier and quicker, and drives greater reliability among existing tenants who sign up to use it,” says SherazDar, CEO ofCreditLadder.co.uk.

If you found this article interesting, you may like these tenancy case studies too: https://www.tenancydepositscheme.com/case-studies.html

About TDS:
Tenancy Deposit Scheme (TDS) is a government approved scheme for the protection of tenancy deposits; TDS offers both Insured and Custodial protection and also provides fair adjudication for disputes that arise over the tenancy deposits that we protect.

We provide invaluable training in tenancy deposit protection and disputes for agents and landlords through the TDS Academy as well as joining with MOL to provide the Technical Award in Residential Tenancy Deposits.

TDS Insured Scheme: where a TDS member can hold the tenancy deposits as stakeholder during the term of the tenancy.

TDS Custodial Scheme: where TDS hold the deposit for the duration of the tenancy.

TDS Academy: TDS provides property professionals with invaluable training in tenancy deposit protection and tenancy deposit disputes.

TDS can only comment on the process for our scheme, other deposit protection schemes may have a different process/require different steps. Content is correct at the time of writing.
These views are those of the author alone and do not necessarily reflect the view of TDS, its officers and employees.

Other news stories