Hi, the applicant failed referencing because of affordability. She does multiple self employment jobs and recently started to receive UC. She passed all the other checks (Credit Check, Letting History and Identity) but affordability because the referee from a new contract job haven’t responded. Also Openrent didn’t take into account the UC received for the last month. She’s happy to pay for 6 months in advance and sign a 6 month contract. What are the risk of going ahead with her? She has provided a guarantor also but she didn’t pass affordability either because of not enough earnings but passed all other checks (Credit Check, Letting History and Identity).
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Do you mean a Guarantor?
Sorry, yes I meant the guarantor. I have just updated my post.
Ask to see 6 months bank statements which will show income from paid work ,UC etc, importantly it will also show outgoings. You may need to reference the guarantor to make sure they own their own home and are able to pay the rent in the case of the tenant not being able to. Be aware that careful tenant selection has never been more important as the Renters Rights Bill will abolish section 21. Removing a tenant from your property who cannot afford to pay the rent is going to become very costly and long winded.
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… from the guarantor as well. You check out a guarantor’s finances in the same way you would a potential tenant’s because they’re there to pay the rent if the tenant fails to. Also check land registry to make sure the guarantor actually owns their house as this can be used as collateral in case debts need to be recovered.
Do her monthly earnings exceed 3 times monthly rent? That’s the minimum. Some go to 3.5 x rent.
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No, it covers half. Openrent didn’t take into account UC she started to receive a month ago. That’s why she agreed to pay 6 months in advance and sign a 6 month contract. Do you think this is ok?
What happens after 6 months ?
Sorry, I should have written “income” not “earnings”. Unlike many, I’m not bothered where income comes from as long as it’s consistent and enough.
With UC included, is it 3 times?
I never take more than 1 month’s rent in advance even if I’m offered more. MOney up front is zero guarantee that money will come in regularly later on so, IMO, it’s pointless to accept it (unless you’re on a short term let like students)
Signing a 6 month contract means nothing cos that’s a basic AST anyway.
The only way I’d take her on a financial basis is if her income (from all sources) was at least 3 x rent. If not, then no.
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I told her that we’d do a new contract if she passed the reference again after 6 months. Or they will have to leave at the end of 6 months or pay 6 months advance again. Do you think I’ve been naive? Sorry I am a new landlord. From hindsight I wish I hired an estate agent to find me a tenant rather than Openrent.
it doesn’t matter whether you hire an estate agent or do it yourself via Open Rent, you need to very quickly get clued up on the legalities. Yes, a good agent will make sure everything is by the book… but you’ll need to make sure that they are doing this. So, join a landlord association and do their courses to get up to speed. It could be very costly otherwise.
From the sound of it, you don’t know what you’re doing with referencing or contracts or payments. 6 months up front will be illegal under the soon to become law Renters’ Rights Bill (RRB - look it up) and tenancy agreements do not automatically end after 6 months. They continue.
IIWY, I would not continue with this applicant and I would quit Open Rent and go and find a big name high street estate agent to start again with. I would even explain to them that you tried to DIY but realised you were out of your depth. That way, they’ll hopefully reassure you by helping you understand the legalities involved. That’s a good way to start learning the trade while you do LL training online via a LL association.
Yes, this will cost you money in the short term, but it will cost you far, far less than taking on a tenant who cannot afford the property with the RRB around the corner.
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Likely you wont be able to do this. Renters Rights Bill will likely to be in action by then, and the contract will have become a periodic tenancy regardless of its initial term.
Also, you will only be able to accept 1m rent in advance, so you will be forced to accept only monhtly payments.
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Thank you. So is there is a risk of tenants staying beyond 6 months without paying the rent then?
The tenancy can only be ‘ended’ (against the tenants will) by a court, even if they are not paying.
You will be tied into a ‘never ending’ periodic tenancy, and unless the tenant gives you notice that they wish to leave, you will need a courts backing to get them out. That could take a year…. can you afford to be ‘not receiving rent’ for 12 months? … this is the risk of being a Landlord
er yep. 
Read this post started only last night
Imagine the tenant stops paying and you go to court, the judge will ask you “why did you rent to someone who cannot afford to pay”.
This is a no brainer, find someone else.
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I feel for your prospective tenant and I get the sense that you might like them, but you have to put your business head on here. I would say no in your position. It sounds from your post as if you might be on a learning curve, so I really do recommend that you find a tenant with a steady income, that qualifies for rent guarantee insurance. You have to keep yourself safe as eviction is such a long expensive process these days. It is such a shame that the Renters Reform Act has tarred all landlords with the same brush. It is so much harder now to take a risk and support people that are borderline on affordability. (Make sure you deliver the correct paperwork when tenants move in btw You may need evidence of this further down the line).
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I would add that accepting a tenant who is borderline affordability may make it hard for them to find alternative property should they not be able to pay the rent or if you want to re-market it or sell. She may be advised by charities to stay put because they know laws are changing and even if she tries to leave other landlords will not accept her due to non affordability issues . Give yourself some leeway and choose someone who can comfortably afford it.
Inflation too is is a factor . You may want to increase the rent at some point and she needs to be in position to pay higher one.
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Personally, I would request another Guarantor, who owns property in England or Wales. I have a form, my non-practising barrister mother had drawn up, by a solicitor, about 40 years ago, which needs to be witnessed, with the guarantor signing they will pay the rent and bills if two weeks late. Then check the Proprietor Register at the Land Registry online for £7.
I always insist on at least one guarantor, nowadays, whether one claims to be earning £42K a year, with a Sony Recording Contract, paying me £30K in rent, or a man in private equity and his partner earning £2.5million P.A.
I had a tenant, from Germany, about 20 years ago, who showed me a recent bank statement with £50,000 in it. She was a Project Manager of an online gambling company, based in Moorgate, which went belly up. I think she felt home sick and asked to be released from the contract early. I agreed.
I have had one 4 bedroom house empty 9 months, in Hackney, until I started an Airbnb, with a £19,000 self-assessment tax demand, due 31/07/25, because of many unsuitable applicants and liars, who had invalid guarantors, witnessed 4 days after the guarantor signed it and one who said her mother was only renting, when I asked did her mother own the freehold, or leasehold, as the fees to check had gone up from £3 to £7.