One of the seismic changes for landlords and letting agents this year will be when the Renters’ Rights Bill bans taking rent in advance.

While many of the other measures in the legislation such as banning Section 21 notice evictions will affect tens of thousands of landlords every year, banning rent in advance will impact the 100,000s who regularly charge rent up front when taking on higher-risk tenants.

We caught up with Richard Dawson (main image) from RentGuarantor, whose firm is likely to be at the receiving end of these changes, to find out how he thinks banning rent in advance will play out.

Q: Once rent in advance is banned, what options will landlords and agents have?

“If a landlord or agent is approached by a prospective tenant with a bad credit history or who fails referencing or doesn’t have family prepared to guarantee their rent payments, then agents and landlords will currently ask for rent up front,” says Dawson.

“Landlords or agents need to ensure they are offering tenants choice; tenants must be allowed to use a traditional guarantor if they can provide one or direct them toward a professional guarantor service. Agents or landlords can’t stipulate that renters use a paid-for rent guarantor service like ours as that would be a prohibited payment under the Tenant Fees Act 2019.

“But that said, once rent in advance is banned, renters who may have chosen to use this method could have to consider signing up to use a professional guarantor service such as RentGuarantor or hope they can find a landlord or agent prepared to ‘take a chance’ with them.

“The problem is that even personal guarantors such as family or friends can be problematical. For landlords, chasing them for the payment of rent arrears isn’t easy and the chasing doesn't have a high success rate. Furthermore, many people willing to stand as a guarantor may not be able to pass referencing themselves, due to shortfalls in affordability or their own poor credit profile.

“Most referencing platforms require tenants to earn 30 times the rent for prospective tenants to pass referencing on their own, which in London might mean they must have approximately £50,000 a year spare after they pay their rent.

“In Middlesbrough, using the same formula, you may only have £14,000 pounds a year left after the rent is paid, using the same formula.

“For guarantors, the threshold is often even higher – 36 times the rent. This means in London you've got to find a guarantor who is earning £72,000 a year, putting them in the top 10% of the UK’s earner.

“Also, the way some referencing firms calculate these figures has not changed much since the late 1980s, which makes the system even more stacked against some poorer renters, although a few more modern-thinking referencing companies are now changing that via Open Banking-based payment history checking.”

Q: How do you take on the rent arrears risk that other cannot or won’t accept?

“Firstly, we complete a thorough referencing process but it's processed via a more methodical, individual, tenant-driven mentality,” he says.

“We also have a very strong mediation team that sits before any form of claim and tries to resolve rent arrears with payment plans where required, although ultimately if the situation cannot be resolved then we still instigate an eviction on the landlord’s behalf if it becomes necessary.

“Lastly, we back our products with insurance. We've got our own insurance in place for our contractual liability, which we can use as a tool should there be a spike in rent arrears claims.”

Q: What will happen when the Renters’ Rights Bill also bans discrimination by landlords or agents against those in receipt of benefits?

“I think that they will look at the, say, 20 applicants for their property and – legitimately and legally – pick the person who presents the lowest risk of rent arrears, which could be bad news for those on benefits, but arguably that’s not ‘positive discrimination’, just economic reality. Importantly RentGuarantor are happy to work with tenants in receipt of benefits to ensure they can be deemed to be very low risk by landlords” he says.

“It's more important now than ever that landlords select the lowest risk tenants, with delays within the evictions system and increased rents, potential landlord losses are at an all time high should the tenant fail to pay, In some areas it can take up to a year to from non-payment to securing vacant possession through the court system.” he adds.

Richard Dawson is Chief Information Officer at Rent Guarantor.

Pic credit: Making Video Your Business.

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