Landlords being prompted to run credit checks on tenants

As the economy falters and job losses increase, worried landlords are being advised to carry out credit checks on prospective tenants. Nearly three quarters of landlords say they expect rental arrears to be issues in 2009.

Evicting recalcitrant tenants can take up to six months and end up costing the property owner nearly £1,000. The easier option, say advisers, is to tighten up credit on prospective tenants before they move in.

Buy-to-let investments, once regarded as solid and profitable, has been made less viable by insolvent tenants, rising mortgage rates and falling house prices.

Landlords in England and Wales lost £52.9bn of equity in their property portfolios over the last year, according to MPL’s British Property Opportunities fund, which buys distressed portfolios of residential and commercial property.

As a result, the Council of Mortgage Lenders says that the number of buy-to-let investors unable to meet their mortgage debts is increasing.

And as buy-to-let investors have not been included in the governments’s mortgage protection scheme, they cannot rely on external help.

Highly-geared and smaller landlords, who tend to rely heavily on monthly rental income to meet their mortgage payments are being warned that a basic credit check on a tenant might not be enough.

As well as requesting a deposit of one or two months rent, David Salusbury, chairman of the National Landlords Association (NLA), believes it is more important tan ever that landlords make an informed decision about the financial worthiness pf prospective tenants. “ A tenant reference check before they make a decision will give landlords some additional peace of mind that their tenants can meet rent payments,” he says.

A number of private companies offer to check tenant credentials for a fee of between £25 and £100, and most lettings agents provide a check as part of their services.