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As a landlord, you’ll probably come across guarantors at one point or another. They’re pretty widely used – and research by Goodlord suggests that they’re becoming even more common, with the number of non-student renters with guarantors jumping by 36% in just four years.
But if it’s your first time handling guarantors as a landlord, you’re likely to have a lot of questions.
Here, we explain all you need to know – from when a tenant might need a guarantor to how to include them in a rental agreement. Let’s get stuck in.
What is a guarantor?
Put simply, a guarantor is responsible for paying a tenant’s rent when the tenant is unable to pay themselves. A guarantor may also be liable for covering costs if the tenant causes any damage to the property.
As a landlord, you can apply for a county court judgment (CCJ) against both the tenant and the guarantor if neither pays what they owe.
When would a tenant need a guarantor?
There are no hard and fast rules about when a tenant is required to have a guarantor. But they’re typically used when you can’t be certain that a tenant will be able to pay their rent.
For example, you might want to request a guarantor if your tenant:
- Doesn’t have a regular income (guarantors are particularly common for student lets)
- Doesn’t have someone to provide a reference
- Has a low credit score
- Doesn’t pass affordability checks (which usually require a pre-tax income of 2.5 times the rent).
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These circumstances don’t necessarily indicate that a tenant won’t or can’t pay their rent.
For example, they may not have a reference if they’ve just moved from abroad or it's their first time renting. And a tenant could have a low credit score because they’ve never taken out credit or recently switched bank accounts.
But a guarantor can give you peace of mind, as well as additional legal options in the worst case scenario.
Who can be a guarantor?
From a tenant’s perspective, using a guarantor involves a high level of trust. So it’s common to ask parents or close family members.
From a landlord’s perspective, a guarantor needs to be financially stable enough to fulfil their obligations. There are no laws that determine who can and can't be a guarantor, so how you decide this is up to you.
Some landlords set the threshold for affordability checks higher for guarantors than the tenants themselves. And while some require guarantors to be UK homeowners or in long-term employment, this is your choice.
You should make sure that you carry out thorough checks (such as credit searches, referencing and affordability checks) on a guarantor in the same way you would check a tenant.
Remember, the Tenant Fees Act means that you – not your tenant or their guarantor – must pay for these checks.
How do guarantors work for shared housing?
Things can start to get complicated when more than one person is on the tenancy agreement. It raises questions of when a guarantor is needed and what a guarantor is responsible for.
Joint tenants are ‘jointly and severally liable' for rent. And unless stated otherwise, a guarantor for a joint tenancy works in the same way – the guarantor will be responsible for the entire rent, not just one tenant’s share.
But this isn’t always reasonable from a tenant or guarantor’s perspective. So you may want to consider having a guarantor per tenant and wording your contract to limit each guarantor’s liability to one tenant’s portion of the rent.
You may also want to think about whether you base affordability checks on tenants’ incomes individually or collectively. In other words, do you consider whether the total household income can cover the total rent due, or do you consider whether each tenant’s income can cover their share.
Here are some examples to illustrate.
Guarantors for a student house
You rent a house to five students for a total of £2,500 a month (of course making sure you’ve got the right HMO license).
None of the tenants have a stable source of income, so you ask them all to provide a guarantor. They all ask their parents, and your contract limits each guarantor’s liability to their child’s share.
At the end of the tenancy, one tenant is a month in arrears. Their parent is responsible for paying £500. The other parents don’t have to pay anything.
Guarantors for a couple
You rent a one bedroom flat to a couple for £2,000 a month. One earns £50,000 a year. The other earns £26,000.
The second tenant doesn’t pass affordability checks. But as they have good references, good credit scores and a combined income way above the affordability threshold, you decide that neither tenant needs a guarantor.
Guarantors for a house share
You rent a flat to a group of three friends for £1,800 a month. Tenants 1 and 2 both earn £28,000 a year. Tenant 3 doesn’t have a stable income.
Although the tenants pass affordability checks collectively, you’re concerned about whether the third tenant can pay their share. You ask this tenant for a guarantor.
How to create a guarantor agreement
If you’re going ahead with a tenancy that requires a guarantor, you need to make sure that your rental contract outlines the guarantor’s obligations.
The terms of the guarantor arrangement need to be in writing, whether as a separate guarantor policy or as a clause in your main tenancy agreement, and should outline:
- What the guarantor is liable for – just rent or property damage as well?
- How much the guarantor is liable for – one tenant’s share or the total amount?
- When the guarantor’s liability comes to an end – will it stop at the end of a fixed-term tenancy or continue if the contract switches to a rolling periodic tenancy?
- Whether the guarantor will be liable after a rent increase or contract change.
A guarantor agreement is only valid if it’s signed by the guarantor, and you should give them a copy of the full tenancy agreement and the guarantor agreement before they agree to anything.
It's important that they understand all liabilities and the risks involved. A guarantor agreement might not be enforceable if the guarantor was pressured or misled into signing.
What if a tenant can’t find a guarantor?
You think you’ve found the right tenant, but they don’t know anyone who can act as a guarantor. What next?
You could ask the tenant to pay some of their rent upfront, guaranteeing that you won’t be left in arrears for the months paid in advance.
Another option is to look into rent guarantee insurance, which can cover unpaid rent for a set period of time or up to a certain amount. For example, Superscript’s rent guarantee cover can pay rental arrears up to 12 months or £50,000.
And because it’s also designed to cover things like legal defense, contract disputes and tax investigations, you may still want to consider it even if your tenant has a suitable guarantor.
Keep in mind that your cover will only be valid if you carry out thorough referencing on any tenants and guarantors. And although we provide landlord insurance for student houses and cover for landlords of HMOs you can't get rent guarantee cover for HMOs with multiple contracts.
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This content has been created for general information purposes and should not be taken as formal advice. Read our full disclaimer.
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