Checking Tenant Bank Statements

Checking Tenant Bank Statements

One of the interesting differences between landlords and letting agents is the extent to which they check up on a tenant’s bank statement to see their current credit and cash flow situation as part of their standard reference checks, says David Lawrenson of www.LettingFocus.com.

Some landlords and some letting agents simply rely on a credit report score or a credit company bald “Go” or No Go” decision, possibly backed up with information on income / earnings from an employer (or via the SA320 from HMRC and / or an accountant’s statement, if the applicant is self-employed). These letting agents and landlords will simply look to see that the tenant’s income is currently at least 2.5 times the rent and as long as the credit report (from Experian or another agency) says “Clear” or “Go Ahead”, confirms the current address and does not reveal anything nasty, such as a County Court Judgement against the tenant, they will offer a tenancy.

But in my view this is not enough, because it is possible for someone to be earning many multiples of the rental income and to have a clear credit report but to be in trouble financially.

And the only way to spot this is to ask to see bank statements for each tenant applicant. 

So, for our tenants, we ask to see the last 3 months’ original bank statements on their banks headed paper, (not a simple print out of transactions from the tenant’s online account). If the applicant is self-employed, we ask to see 6 months’ bank statements.

Checking Tenant Bank Statements

Having a proper printed statement will also validate each tenant’s address, which is useful in itself. If the last bank statement was more than two weeks ago, a simple print out of the most recent transactions since that statement, will suffice for a view of the most recent financial activity.

The statements can be emailed to us, or if the applicant prefers, they can bring them to our offices for us to look at instead. We will not ask to keep copies of the statements, but we need to spend a few minutes going through them to establish what each applicant’s cash flow is like in order to assess whether they can really afford the rent.

So what are we looking for from these bank statements? 

Well, we are looking mainly at incoming and outgoing money. We like to see the incomings be more than the outgoings! We look carefully at what the outgoings are for and, if it is not clear from the statement information what the outgoings are actually for, this may lead to us asking more questions of the applicant.

So, if the applicant says that a big item of outgoing is into a savings account; that is good. If they say that a big item of the outgoing is for a loan; that is not so good.

And it goes without saying that they should be in credit and certainly not overdrawn. If they are not in credit, then you should ask where will the rent will come from, if their income should happen to stop, which can, of course happen fast, if they lose their job.

Checking Tenant Bank Statements – The Onus is on them!

With this process, you have to have the right mind-set as a landlord and as part of this, it is your job to make clear to the applicant that it is up to them to prove to you, that they can afford to rent the property comfortably. Remember, you hold all the cards here. You have the property they want to rent! Sure, you can be pragmatic and flexible but they still have to prove to you that they can afford the rent. The onus is very much on them!

If their cash flow, as revealed by their bank statement looks poor, it might be that they are putting a lot of money away to a savings account. In which case, great – and you should ask to see that too.

You have to be sensible and pragmatic about all this though – and keep in mind that the average tenant might not have a lot of savings and / or too much of a cushion financially. After all, if they were that well off, they might have already bought a property of their own and not be renting!

Low savings or zero savings will often be the case if the applicants are young and have student loans to pay.

It helps if there is more than one tenant applicant, so if one loses their job, there still remains income for the other applicant.

You can always take a view on things too and be flexible. So, if someone is a newly qualified doctor, they are not likely to be out of work very long, (unless they kill their patients!), and their income should be quite reliable. In these circumstances, it might not matter if they don’t currently have any savings at all. As long as the bank statements show they are living within their means, then you can be flexible, in a way that many letting agents may not be able to be.

If someone is not willing to provide banks statements to us, we would not let one of our properties to them.

In my experience, only about a quarter of letting agents ask to see bank statements, though this figure is closer to a half of agents in London.

Checking Tenant Bank Statements – and Guarantors

If they cannot satisfy you that they can afford the rent, then you might be able to accept a guarantor instead. A key factor with any guarantor, alongside all the other checks you should do, is that they should be able to show, via their own bank statements, that they can easily afford the rent as well as meeting all their own financial outgoings. All guarantors must be UK citizens and they must own property in the UK, as this will make it easier to recover any outstanding debts or money owing.

We have written about guarantors in many of our past posts – so do check these out, especially this one on guarantors.

Both my books for landlords – see below – have much more on how to check the suitability of any tenant applicant.

 

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2 comments

  • You mention that ‘All guarantors must be UK citizens’. Is this the law? Ten years ago, I had a guarantor who were based in France. It was a problem for the real estate agent. But has regulation changed?

    • No it is not part of any law…. but it is a part of “David’s Law”.
      It’s a part of MY law because through a UK court you could eventually secure money you are owed by a guarantor against any sale of a property by the owner/guarantor of that property in the UK.

      Effectively, a charge is put on property they own, so your debt has to be cleared first before sale can proceed.

      As far as I know that would be impossible to do this for any property outside the UK.

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