Tenant financial difficulty - Spotting the signs

An increasing number of tenants are using payday loans to make their rent.

Recent figures from housing charity Shelter suggest that almost one million people have used an expensive loan of this sort in order to pay their rent or mortgage. A total of seven million use credit of some form to meet their housing costs.

This poses problems not just for tenants, but also for landlords. Financial difficulties for your tenants can easily become financial difficulties for you, and it is therefore important that you learn how to spot them – both before and during a tenancy.

1. Conduct credit checks

Credit checks are amongst the most important weapons in your anti-arrears arsenal. They should be a fundamental part of the letting process – and yet many landlords do not use them.

A credit check, along with verifiable income details, can help you determine whether or not a prospective tenant is likely to be able to pay the rent. While they will not give you a complete picture of the individual’s financial situation, they can help you spot important ‘red flags’ like a history of arrears or a CCJ.

Remember, fees for credit checks have just been banned in Scotland.

2. Request references

References from previous landlords can help you to identify tenants with a history of late payment. Ask for a phone number in order that you can verify the references.

When used in tandem with credit checks, landlord references can enable you to make more informed decisions about tenants’ ability to pay, before the tenancy begins.

3. Keep abreast of payments

It is important that you keep on top of rent payments. A few days’ tardiness can be the sign of more severe problems on the horizon, and it is therefore important that you check on each rent day to ensure that payment has been made.

4. Be approachable

In many cases, financial problems are compounded by an unwillingness to confront them. This doesn’t apply solely to tenants. Many people simply ignore bills or debts that they can’t pay at the time, in the hope that they will be better able to do so at a later date.

You need to be as approachable as possible, in order to ensure that this doesn’t happen. Make it clear that it is best for your tenants to contact you in advance if they think they will be late with the rent, and work with them to find a solution. You can mitigate the problem by tackling it sooner rather than later.

5. Be prepared to negotiate

You should think carefully about the way in which you interact with your tenants when they do fall into arrears, or when they warn you that they might. Intransigence is rarely the best policy. Instead, try to be as understanding as possible, and take steps to reach a mutually acceptable conclusion. This approach is almost always the best long-term option.

6. Consider insurance

Finally, it is important to remember that you will never be able to eliminate the potential for tenant default; it is, unfortunately, an occupational hazard. You should therefore also consider taking out tenant default insurance, also known as rent guarantee cover. This can be purchased as part of your landlord insurance policy.