Things You Should Know About Being a Rent Guarantor
Read this before being a rent gaurantor
You’ve just been asked by a desperate son, daughter or friend to act as guarantor for the rent on their new apartment. You’re their last hope, the only person who can save them from homelessness. But you’re not exactly sure what is expected of a guarantor, or what it even is. It sounds risky and potentially expensive. If this scenario is familiar and you’re experiencing some of these doubts, this article is for you.
So what actually is a rent guarantor?
A guarantor for rent on a residential tenancy is somebody who acts as surety by legally agreeing to take over the financial obligations of the lease in the event that the tenant defaults. This often means that a guarantor is liable for any rent or property damage that the leaseholder has failed to cover. A letting agreement like this provides a form of insurance for the landlord that covers his losses if the tenant refuses to cough up the rent or simply vanishes into thin air.
Being a rent guarantor is high risk – low reward. Worst-case scenario: you get saddled with someone else’s debt. Best case scenario: the tenant you are sponsoring pays all the rent, in a timely manner, and lavishes you in eternal gratitude.
And why would somebody need one, anyway?
There are a number of reasons why a landlord or letting agency might ask the potential tenant for a guarantor…
- They’re a student or a young person with no credit history.
- They’re the unfortunate owner of a poor credit score due to previous defaults, court orders or even bankruptcy.
- They’ve just started a new job or don’t earn much money.
- They’ve moved around a bit or have just returned from abroad.
- They can’t obtain a sparkling reference from a former landlord or agency.
A prospective tenant might find himself in the bizarre predicament of having a secure, handsomely paid job yet still needing a guarantor, possibly due to a disastrous credit rating or former nomadic lifestyle. If they can’t find somebody to stand surety, shopping around other letting agencies in town is a sensible move; each company has different criteria for judging who is a worthy leaseholder or a credible guarantor. If that fails, they are left with few options although offering six months rent up front is usually a deal-clincher.
Thinking of being a rent guarantor yourself? Stay sharp and read on…
Claims against guarantors are on the rise and prerequisites for standing surety are becoming more stringent. It might be a requirement that you are a homeowner and you will almost certainly have to prove that your income is over a certain threshold. For example, the landlord/agency might demand that your yearly salary or income has to be a minimum of fifty times greater than the tenant's monthly rent payments. Therefore, if the monthly rent was £400, you may need a minimum income of £20'000 to be considered as a gaurantor. On top of this, it will be a necessity that you have been in your current job role for at least several months, possibly longer.
In order to complete an application, the agency carrying out the check will ask you for some or all of the following information:
- Your name and date of birth.
- Your national insurance number
- Your contact details including duration of stay at your current address.
- Your employer details such as the name of the company you work for, the contact number of your manager or HR department, your salary and length of time in current role.
- Your bank details.
Armed with this information, the agency will seek assurance that you are suitable to act as guarantor by carrying out a background and employment check. This entails contacting your employer to confirm your salary and the date you began the job. Depending on the criteria of the agency performing the verification, they may also carry out a check on your credit history.
Take note: If a credit check is performed, fingerprints will be left on your credit file. Several credit checks carried out in a short period of time can lower your credit score.
The Guarantor Agreement
The second part of the process, once you’ve been green-lighted, involves checking and signing the Guarantor Agreement. It is important that you are clear about your obligations as guarantor. Be vigilant and ensure that you understand the wording. Ask the landlord or agency for clarification if necessary and as an extra safeguard, you could always run the agreement past your solicitor or legal advisor.
Before signing the agreement, make sure you know the answer to the following questions:
- Who are you agreeing to act as guarantor for? This might sound like a stupid question but if you are the parent of a student, you need to be certain that you are only liable for the rental obligations of your son/daughter and not the entire student animal house.
- In financial terms, what is the extent of your liability?
- How long will your term as guarantor last? What happens in the event that the tenant wishes to extend their tenancy agreement once the initial contract has expired?
- How quickly will the landlord or letting agency contact you if the tenant misses a rent payment?
- What course of action will the landlord take if the tenant stops paying rent or moves out from the premises without giving formal notice or adhering to the tenancy agreement?
It is also worth noting that if you are required to fill out an online application, the actual legal agreement might be tied in to the same stage of the process where you submit your personal/employment details for approval. Again, make sure you are absolutely clear. Each agency has a different system of application and there is no common formula for the wording of a Guarantor Agreement.
Before being a rent guarantor, make sure you can answer yes to the following four questions:
1) Do you completely trust the tenant whom you are agreeing to sponsor?
2) Are you financially capable of taking over the obligations of their lease if they let you down?
3) Are you comfortable having an employment and credit check performed on your name?
4) Do you fully understand your responsibilities and liabilities, as outlined in the Guarantor Agreement?
For many people, being a rent guarantor is about lending a helpful hand to family members and friends. But it can turn ugly. Make sure you minimise your exposure to risk, and be prepared to take a hit if things go wrong.