For even the most seasoned landlords, finding new tenants for your rental property can be an unsettling task. Whilst there are many ways to reference prospective tenants in order to find the best candidate, extra cover and support with the tenant’s rental payments via a rental guarantor is a great way to make the process as safe as possible for both the tenant and the landlord.
This blog will guide you through the process of using rental guarantors, what are they? Does your tenant need one? and how to request one.
What is a rental guarantor?
Simply put, a guarantor on a tenancy is someone who ensures that every rent payment is made by the tenant.
By agreeing to be named as a guarantor, they agree to compensate, or pay any missing payments from the tenant to the landlord, acting as a sort of insurance for the landlord.
In theory, having a guarantor on a tenancy ensures that the rent is always paid and that the tenant does not fall into arrears that cannot be paid back to the landlord.
Who is eligible to become a guarantor?
So long as the guarantor is a UK resident, is over the age of eighteen, earns a wage sufficient to cover the rent, and has an acceptable credit rating, they can be considered.
Guarantors are also normally expected to be homeowners.
In the majority of cases, tenants ask relatives or friends to become a guarantor or can use a guarantor insurance company, whichever suits the tenant.
These guarantor insurance companies function as an ordinary rental guarantor would, and are often used by people who can’t provide an adequate guarantor, such as:
- International students and workers
- People receiving universal credits.
How much should a guarantor earn?
Letting agents generally work on the principle that a rental guarantor should earn at least 3 times the annual rental amount.
At any rate, agents and landlords should check the guarantor to verify that they can indeed cover the tenant’s rent.
This can be done by checking the guarantor’s credit score, and by obtaining an employer reference to verify their earnings.
In the case where the guarantor is self-employed, the relevant reference to verify earnings can be obtained via the guarantor’s accountant.
When should you use a guarantor?
As the landlord, it is ultimately up to your discretion to decide when to request a guarantor, and when not to when considering tenants.
Depending on a variety of factors such as location, rental stock vs demand, pricing etc., landlords may find that requesting a guarantor is not always suitable.
As a rule of thumb, a rental guarantor can be used as a sort of safety net if the following conditions are true:
- The tenant is less than 21 years old.
- The tenant has lived abroad with little or no UK credit or residential history.
- The tenant is a student.
- The tenant has a low credit score or no credit score to speak of.
- The tenant has a history of debt or CCJs (County Court Judgements).
- The tenant has not lived at the current address for more than 6 months.
- The tenant has not been employed at their current place of work for more than 6 months.
- The tenant’s income does not meet the affordability line.
What is requested of the guarantor by the landlord?
A rental guarantor application might ask for the following information from the guarantor:
- Their personal details (including contact information).
- Their income and employment history.
- Employer references (Or accountant references if they are self-employed)
- A history of any legal issues and CCJs
- Permission to conduct a credit search.
When can a landlord contact the guarantor once a tenant fails to make a payment?
The landlord can make efforts to contact the guarantor to recuperate unpaid rent from the tenant from a day after a given payment is due.
It should be noted that a guarantor is not required to pay the landlord until they have been contacted and asked by the landlord (or acting letting agent).
Before a guarantor is called, a landlord may opt to discuss a payment plan or seek the advice of a mediator with the tenant before even involving the guarantor at all.
If you are interested in learning more about rental guarantors, and the many other aspects of property letting, Browse our Landlord Academy, and find video tutorials showing the process of letting out a property. Perfect for accidental landlords, newer investors, or just those looking to refresh their knowledge.