Wary tenants change terms of reference on landlords

Wary tenants change terms of reference on landlords

Struggling buy-to-let landlords are eating humble pie when it comes to finding tenants. Checks and references traditionally carried out on tenants to assess their reliability in paying up are now being reversed as renters seek assurances the owner of their new home is legitimate and not on the verge of being repossessed.

David Underwood, a lettings consultant at Darwoods in St Albans, Herts, has noticed a "marked shift" in emphasis. "Tenants have been far more interested in landlords' backgrounds and are asking more questions about where their deposit is being held," he says.

Since 2007 all deposits have had to be stashed in a government-approved tenancy deposit scheme, but the insurance-based version allows landlords to hold monies under their own name.

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"As the deposit typically amounts to six weeks' rent, we are finding fewer tenants are comfortable with this arrangement," says Underwood, "although in the vast majority of cases the lettings agent keeps hold of the funds."

Tenants are also balking at the prospect of paying six months' rent upfront if they are self-employed and do not hold audited accounts.

"In this situation the agent can take the money, hold it in a non-interest bearing account and pay the landlord themselves," says Underwood.

It would seem that tenants' concerns are well founded. When the Council of Mortgage Lenders (CML) started compiling buy-to-let data in the second half of 2005, only 200 investment properties were in mortgage arrears of three months or more. By the first half of this year, this had soared to 5,400.

Repossessions of investment homes also climbed, from 400 to 2,800, during the same period.

There is nothing to stop tenants checking out landlords before setting up home in one of their properties.

Tom Entwistle, managing director of TenantVerify.co.uk, a tenant checking service, said: "Just as landlords can run checks on their tenants, there is no reason why the process should not be reversed. The only information you need is a name and current address."

A basic check with TenantVerify costs £15.88 and will reveal an individual's credit score, outstanding debts, whether there have been any county court judgments filed against them, and their main residence for the last six years.

A more comprehensive check, which costs £30.88, looks at a landlord's contract of employment, earnings and character references.

However, while in theory credit checks can be carried out on tenant and landlord alike, each party will need to obtain written permission from the other. This is easy for a landlord, because the required signature will form part of a tenant's initial application form.

Prospective tenants will, however, need to be more creative and draw up their own document.

"This should not pose a problem for landlords if they have nothing to hide," says Entwistle. "In fact, if either party seems keen to withhold information, it should ring alarm bells anyway."

If your prospective landlord won't play ball, you can at least confirm that their name matches that on the property deeds by carrying out an online search with the Land Registry, at a cost of £4.

Renting via a lettings agent registered with trade body the Association of Residential Lettings Agents (Arla), will offer tenants the best protection.

"You can't legislate against a landlord going bust but you can at least manage the risk," reckons Arla spokesman Malcolm Harrison.

"For example, a good Arla agent will check the landlord's mortgage and insurance company have been informed the property is rented."

Even if the landlord has not been paying the mortgage on your home – in spite of the fact you have paid rent in full and on time – his or her lender has a duty to consider the rights of the tenants and the tenancy agreement before repossessing, says Bernard Clarke, communications manager of the CML.

"Although cases vary, if the property is occupied by reliable tenants who fulfil their obligations under the tenancy agreement, the lender may appoint a receiver instead," says Clarke.

"The receiver takes over the role of landlord, managing the property, collecting the rent and passing it on to the lender, who will accept it as payment of the mortgage and any arrears."

When the tenancy agreement expires, the landlord's lender will make a call whether to repossess or continue with the arrangement.

If you are in a property and encounter problems with your landlord such as debt collection agencies telephoning or knocking at your door, the first port of call should be Citizens Advice, according to Alice Lythgoe-Goldstein at consumer rights group Which?

"They will point you in the right direction according to the exact nature of your problem," she says.

■ Have you had a problem with a landlord? How easy was it to deal with? Email us at cash@observer.co.uk or write to us at Cash, The Observer, Kings Place, 90 York Way, London, N1 9GU

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