Guarantor referencing: when you need it and how it works

Guarantors have always been a part of the lettings landscape, but we've noticed a definite uptick in guarantor referencing requests over the last year or so. Part of that is the cost of living - rents have risen faster than wages in many parts of the country, and more tenants are bumping up against affordability thresholds. Part of it is agents being more cautious ahead of the Renters' Rights Act, knowing that getting tenants out will be harder if things go wrong.

Whatever the reason, we thought it'd be useful to set out how guarantor referencing works, when it's appropriate and what to watch out for.

When is a guarantor needed?

The most common scenarios we see are:

• The tenant doesn't meet the affordability threshold. The general guideline is that a tenant's gross income should be at least 2.5 times the monthly rent. If they fall short - maybe they earn £28,000 and the rent is £1,000 a month - a guarantor can make up the difference.
• The tenant has a thin or adverse credit history. First-time renters, recent graduates, or people who've moved to the UK from abroad often have limited credit histories. That doesn't make them bad tenants, but it does make them harder to assess. A guarantor with a solid UK credit history bridges the gap.
• The tenant is a student. Students typically have little or no income and no UK rental history. It's standard practice to require a guarantor, usually a parent.
• The previous landlord reference raises minor concerns. Maybe there were occasional late payments or a dispute over the deposit. Not necessarily a deal-breaker, but enough that the landlord wants extra security.

What checks do we run on a guarantor?

We reference guarantors to essentially the same standard as the tenant. That means:

• Full credit check through Equifax (three years of history)
• Income verification (via Open Banking, employer reference, or accountant)
• Affordability assessment - the guarantor's income needs to cover the rent on top of their own housing and living costs
• Identity verification

The key point is that the guarantor needs to be able to genuinely afford to cover the rent if the tenant can't pay. A guarantor who's already stretched financially isn't much use to anyone. We typically look for a guarantor's gross income to be at least 2.5 times the monthly rent, separate from their own mortgage or rental commitments.

Common pitfalls

Guarantors who don't understand what they're signing up for. This is more common than you'd expect. A parent agrees to act as guarantor because their child needs a flat, without really appreciating that they could be liable for the full term of the tenancy. Make sure the guarantor agreement is clear about the extent of the liability, and give them time to read it properly.

Overseas guarantors. Some applicants propose a guarantor who lives abroad. This creates practical enforcement problems - if the tenant stops paying, chasing a guarantor in another jurisdiction is difficult and expensive. We'd generally advise requiring a UK-based guarantor, although some agents will accept overseas guarantors with a larger rent advance (where the law still permits it).

Guarantors with their own financial issues. Occasionally we'll reference a proposed guarantor and find that their credit history isn't much better than the tenant's. This is why we always run the full checks - taking a guarantor at face value defeats the purpose.

The Renters' Rights Act complication

Under the new Act, tenancies are periodic from the start and tenants can leave with two months' notice. This creates an awkward question: how long is the guarantor liable for? With a fixed-term tenancy, the answer was clear - the guarantor covered the fixed term. With a rolling tenancy, the liability is potentially open-ended.

We'd strongly recommend discussing this with your legal team and making sure your guarantor agreements are drafted to reflect the new tenancy model. This is one area where the industry is still working out the practical details.

If you need to set up guarantor referencing or have questions about how it works, get in touch. It's a standard part of our referencing service and we can usually turn around a guarantor reference within the same timeframe as a tenant reference.