Rental guarantors: the new normal in lettings?
If we were to draw positives from the pandemic, one would be that workers have been presented with the opportunity to change their career path. Whether they’ve started a cottage industry from their kitchen table during furlough or have gone it alone after being made redundant by an employer, one thing is for sure – self-employment is on the rise.
In fact, the number of those working for themselves broke through the 5 million barrier for the first time at the end of 2019, while the Institute for Fiscal Studies forecasts a record rise in solo self-employment in 2021. So why does this have a bearing on the lettings industry?
Financial security and employment prospects form a critical part of the referencing process when vetting potential tenants. Those looked upon most favourably are those with job security – workers with a stable income and for the same employer for a number of years.
With the last 18 months seeing a dramatic shift towards freelancing and self-employed status, many tenants renting in the near future will have a largely unsubstantiated income. When it comes to referencing, a few months as an untried and untested self-employed worker may not be enough to satisfy landlords. This is why rental guarantors may be the most important aspect of lettings moving forward – and not just the preserve of student renters.
What is a rental guarantor?
A guarantor is someone who agrees to step in and pay the rent if or when the tenant can’t. Becoming a rental guarantor isn’t a trivial matter – it carries legal obligations and the agreement has to be made in writing. As well as covering any payments, a rental guarantor also acts as a second point of contact, should the landlord be unable to reach the named tenant, and they will be called upon to pay for any damage to the property if the tenant can’t.
A landlord will also want to know that the nominated guarantor has the financial means to pay the rent and to cover damage. As a result, they too may also need to clear credit checks before they are accepted, proving they have an income or savings of their own as part of the process.
Who can be a rental guarantor?
Usually a rental guarantor takes the form of the tenant’s parents or an immediate relative, although it’s also possible for a close friend to become a guarantor. It’s worth noting that some trustworthy people will be declined as a guarantor, such as those who are retired, those who don’t own a property and those who are themselves self-employed.
There are also businesses who will act as a guarantor – useful for when a landlord wants 6 or 12 months’ rent upfront or when the tenant can’t provide a UK-based guarantor. The renter pays a one-off or a monthly fee in return for the company guaranteeing to pay the rent if the tenant can’t.
An option if you can’t get a rental guarantor
If you’re newly self-employed and your earnings are still on the ascendancy, a guarantor is a great option when renting a property. If you’re not in the position to secure a guarantor, you can offer to pay the rent six months in advance, as a clear indication to the landlord that you have the funds to meet the monthly rent. When the six months is up, you may be able to prove your earnings and switch to conventional monthly rent payments.
Landlords and tenants looking for further information about the referencing process and the option of a rental guarantor should contact our team for friendly advice.
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