Guarantors for Rental deposits and Guarantor Loans
On various occasions I’ve had tenants ask what they could do if they are not able to get a guarantor. As an existing Landlord, I would feel extremely uncomfortable about giving tenancy to someone that cannot get a guarantor, because if someone can’t get a guarantor it’s natural for me to think:
Why doesn’t anyone trust this person enough to be their guarantor? Are they trustworthy?
Of course, that’s just speculation. There are potentially endless amounts of genuine reasons why someone can’t get a Guarantor. However, regardless of the justifications, it’s still a problem for Landlords. Or at least, it should be a problem.
As a tenant, I imagine it’s extremely frustrating to be deprived from renting a property because of an external factor like a guarantor. Because at the end of the day, the lack of guarantor isn’t really a reflection of how good or bad a tenant is. But unfortunately, it is necessary for the landlord’s own security.
Most letting agents should require tenants to have a guarantor, but ultimately it is down to the Landlords discretion. If a landlord wants to take on tenants that don’t have a guarantor, they can do so at their own risk.
How to substitute for a guarantor
There are ways tenants can try to persuade landlords to consider accepting their tenancy without a guarantor. I’ve found that the methods I’m about to discuss work quite well.
A guarantor is all about providing the landlord with a sense of security. A landlord wants to know that if their tenant falls in arrears, he/she has something to fall back on. So as long as a tenant provides some kind of security that a guarantor can provide, then the landlord should be kept sweet.
Method 1- Rent Guarantee and Legal Expenses Insurance
A prospective tenant could suggest paying for a coverpolicy. What is that? It’s an insurance policy for Landlords that covers rent if tenants fall in arrears. Additionally, if the tenant runs up any legal costs (e.g. eviction costs), then the insurance company will pay for it.
I’ve got policies like this in place, and have actually had to claim before. It’s actually a pretty good substitute (if not better) than a guarantor. However, I recommend having both in place. Policies can vary in price, but it cost me approximately £120 for a year, which I think it pretty damn good.
If you, as a tenant, are willing to pay that extra insurance cost, it maybe just enough to clinch the property you want to rent, without a guarantor. Just to clarify, landlords can take this out at their own will, regardless of their tenancy circumstances.
Method 2- Increase the security deposit amount
Another way of persuading the landlord is by increasing the security deposit amount. A security deposit is any advance rental payment other than an advance for the first month’s rent or a deposit for a key or any special equipment. So for example, if a property costs £400 to rent per month, that’s how much the security deposit should be.
Security deposits are most often used for the following reasons:
§ to clean the property at the end of the lease term, if the renter did not leave the property in a clean condition;
§ to pay utility bills, if the renter did not pay the bills; or
§ to pay rent, if the renter did not pay the rent.
In order for a tenant to persuade the landlord, he/she could offer two months worth of deposit, as opposed to the usual one month. Landlords can’t require more than two months rent as a security deposit. But obviously, if a tenant pays double the usual amount, the landlord will then have a better sense of security.
It’s important for tenants to note that security deposits are not substitutes for payment of rent, and at the end of the lease they will get the full amount back providing that they haven’t inflicted any form of damage.
Method 3- Rent Guarantee and Legal Expenses Insurance & Rent Guarantee and Legal Expenses Insurance
If a tenant is really in love with a particular property, and is willing to lick gum off the landlords shoe to secure the place, they could always combine the two methods and double the security deposit and pay for the insurance. While the initial costs of moving in maybe high, they should remember that they will get the security deposit back (as long as they behave well), so the only true cost will be the insurance, which as mentioned, costs about £120
Method 4 – Guarantor Loan
If a guarantor is unwilling to get a guarantor to underwrite a rental agreement, how about getting them to underwrite a fixed amount loan , therefore limiting their liabilities. Guarantor loans or logbook loans are ideal ways to raise money if needed for deposits for properties, and is now becoming increasing common.