Should you ask tenants to provide a guarantor?

As a property manager, there might be times when you want to ask a prospective tenant to provide a guarantor, particularly if you're letting to the student market. 

If it's your first time handling guarantors then you might have some queries and concerns about the process. When is it necessary to ask for a guarantor? What are the benefits for you as a property manager? What should you include in the guarantor agreement? And are there any alternatives? In this blog, we answer all these questions and more. 

What is a guarantor?

A guarantor is a third party who will assume the responsibility for paying the rent if the tenant falls into rent arrears or is no longer able to afford the rent. They are also usually liable for damage to the property. A guarantor ensures that you will still receive the payments you are owed even if the tenant is unable to pay.

Why ask a tenant to provide a guarantor?

Typically, property managers ask for guarantors when they can't be sure that a tenant will be able to pay their rent. This could be for several reasons, including:

• The tenant doesn't have a regular income 
• The tenant can't provide a reference 
• The tenant has a low credit score 
• The tenant doesn't pass affordability checks (usually requires a pre-tax income of at least 2.5 times the rent)

There are many reasons why someone might fall into one of these brackets. It does not necessarily mean that they cannot afford the rent, make payments on time, or will make a poor tenant. 

It is common for guarantors to be required in the student property market as students are not in full-time employment. It is also increasingly common for young people to need a guarantor due to a poor credit score, which could simply be because they might not have used a credit card or taken out a loan. Or they might have frequently changed addresses due to the unstable rental market. 

Asking for a guarantor protects your interests as a property manager and provides you with peace of mind. 

Who can be a guarantor?

Your tenant can ask anyone to be a guarantor for them, as long as they are willing and financially able. As this requires a high level of trust and commitment, most tenants will choose a family member to act as their guarantor.

As the guarantor must be financially secure enough to cover rent payments if the tenant can't make them, most property managers carry out reference and credit checks on them too. Generally, it is a good idea to require your guarantors to be based in the UK so it is easier to run these reference checks and hold them liable for missing payments if necessary. Usually, guarantors are required to own property themselves too.

What goes in the guarantor agreement?

You need to provide your tenant's guarantor with a guarantor agreement which sets out their liabilities. This must be signed before the tenancy agreement can progress. It is essential that the guarantor has visibility of the tenancy agreement before moving forward.

Your guarantor agreement should include:

• Guarantor name 
• Tenant name 
• Dates of the tenancy
• Details of the property
• How much the guarantor is prepared to guarantee 
• If the guarantor is liable for property damages as well as rent payments 
• Whether the guarantor would still be liable after a rent increase or contract change
• Whether the guarantor is guaranteeing for a fixed term or rolling contract 

When can you claim from the guarantor?

When exactly you can claim from the guarantor will depend on the specific conditions you laid out in the guarantor agreement. However, usually, you will be able to contact them as soon as a tenant defaults. It is best practice to get in touch with the tenant first if they miss a payment to give them a chance to rectify the issue themselves. If the problem continues, you can then go straight to the guarantor to claim.

What if a tenant can't provide a guarantor?

There are many reasons why someone might not be able to provide a UK-based guarantor, but this does not mean they would make a bad tenant. If you want to allow your tenants greater flexibility when booking without sacrificing the security of payment, Concurrent can help. Concurrent integrates with Leap to allow tenants to select a guarantor waiver option when booking in exchange for paying a higher rental price. 

Want to find out more? Book a Concurrent demo today.