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How The Horrors Hidden In Tenant’s Bank Statements Affect You

Landlords and letting agents check prospective tenant bank statements before approving them, but is it enough?

Some landlords or letting agents only rely on a credit report, backed up with info on income from an employer. Or an accountant’s statement if the individual is self employed.

They look to see if the credit report says “Clear” or “Go Ahead” and that the income is 2.5 times the rent at the moment. This also confirms the current address of the prospective tenant and ensures there’s nothing nasty against the tenant, like a County Court Judgement.

This might seem like enough info to ensure that your applicant is legit and you feel safe to go ahead. But is it?

It is possible for someone to be earning many multiples of the rental income, have a clear credit report and still be in financial trouble. Say, for example, a tenant has a big amount of money leaving his bank account every month, you would want to know what it’s for right? If it’s going into a savings account, great! But what if that big amount of money is for a loan? Or what if the tenant is regularly overdrawn? Where will the rent come from?

That’s why you should ask the tenant for bank statements.

What do you need to look for in the bank statements?

  • Incoming and outgoing money, you obviously want to see more money coming in!
  • What are the outgoings for? If it’s not clear, ask the applicant.
  • They should be in credit and preferably not overdrawn. If they aren’t in credit, ask them where the rent will be coming from  if they happen to lose their job, which can happen fast!
  • If their cash flow looks poor, it might be going to savings. Ask to see those statements as well.

Things to keep in mind:

  • Low or no savings might often be the case if the applicants are young and have student loans to pay.
  • It might be a good thing to have more than one tenant for in case the one loses their job.
  • Keep in mind that not a lot of applicants will have a big financial cushion, otherwise they probably would have been property owners themselves.
  • If the applicants bank statements doesn’t prove them to be suitable applicants, you can accept a guarantor instead. Just check the guarantor’s bank statements to make sure they can afford the rent and meet all their financial outgoings easily.

How do you ask for Bank Statements?

  • Request 3 months’ original bank statements with the bank’s headed paper, not just a simple print out.
  • If the applicant is self employed, ask for 6 months’ bank statements
  • If you have a proper printed statement from the bank, this will also validate the tenant’s address.
  • You can ask for the statements to be emailed or to be brought to you to look at. You don’t need to keep copies, but simply need to go through the statements to establish if the applicant can really afford to rent your property.

In our experience, if someone is not willing to show us their bank statements, it’s best not to rent the property to them.

You should know, the onus is on them and you have the property. It is up to the applicant to prove to YOU that they can afford to rent the property. You hold the cards!

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