Just how secure are guarantors?

[Digger40]

I'm a virgin landlord embarking on my first buy to let. In my advert I stressed no Housing Benefit applicants but have been approached by a single mum who works part time and intends to apply for HB to cover the majority of the rent. She was very open about her financial status but to mitigate my concerns her mother (employed full time and with her own property (albeit mortgaged)) has agreed to act as a guarantor. In addition they said her father (no longer with the mother I believe) who runs his own business will also be a guarantor. As further security they are prepared to pay 2 months rent as deposit rather than the 1 month requested in my advert and will pay the first months rent in advance before the HB kicks in.

From a novices perspective this all sounds very secure to me (or secure as it can be) and assuming the references on the tenant and the two guarantors stack up my inclination is to let the property to the daughter. I suppose I'm looking for general comments from experienced landlords here regarding the scenario I have outlined.

My main concern I think is just how easy would it be to get rent arrears from guarantors in the event the daughter is unable to keep up with rent payments. I've yet to receive formal confirmation of the tenants earnings but as she only works 2 days a week in child care I suspect that even with full housing benefit she is likely to need some help from mum and dad to make ends meet.

Am I worrying unnecessarily? Any views would be appreciated.

[Grampa]

As a agent who deals with HB tenants on the face of it, it seems promising.

How old is the lady?

How many kids?

Is the lady already in rented accommodation? How does that rent compare to yours? Why is she leaving? Can you get a ref from the previous landlord?

Do the guarentor's live near the property. I always find it better if they do.

Does she already get HB?

Are planning to have HB paid direct to you? For a situation like this if agreed I wouldn't, and make it clear to the tenant that you expect the rent to be paid in full on the due date according to the AST.

It is good that you have 2 guarantor's but make sure the agreement is a deed and it is made perfectly clear to the guarantor's that you will be requesting any rent off them if unpaid by the tenant.

Have you looked on this site http://lha-direct.voa.gov.uk/search.aspx to see how the rent you are asking compares to the hb rates in your area. Because if the tenant stops working for whatever reason the HB should kick in, in full but if your rent is much higher than the current HB rate that can be a problem.

[Melboy]

I think Grampa has covered all the important questions that need to be followed up by you.

The prospective tenant has covered most things that you would be looking for to cover you as a landlord.

[Antnkel]

I've let to a couple on hb, never again.

I might of just been unlucky but from their attitude, all the lies and the way they left my property I would NEVER consider hb again.

[Digger40]

Thanks both. The prospective T is living with her mother (who has a young child of her own) and a few other siblings. It is just a case of the nest having gotten too small for the brood so the daughter wants to move out with her child. Therefore there is no past history of renting. I would hazard a guess that the daughter is in her early 20s and her child looked no more than several months old.

I've looked at the HB in Havering and I believe it is £819 pm whereas the rent will be £925. The shortfall is fairly low but then so will her earnings be given her part time status and chosen occupation. This causes me a slight concern as even with other State benefits that she is entitled to I can still see her struggling to bring up a child and pay the rent unless she gets further help from her parents. Havering don't pay HB direct to landlords unless there are special circumstances or the usual 8 weeks arrears apply. As you say Grampa I would rather the T stick to the payment terms of the AST anyway so this is not a problem. The T hasn't applied for HB yet as she was told by the Council that she would need choose a property and produce the AST before proceeding.

I know that one of the guarantors, the mother, lives local (in Romford and the rental property is in Rainham both in Essex), another tick box as far as I can see.

I think the key to this will be the guarantors. I will have to thoroughly credit check them and, as you say, make sure they complete formal Deeds rather than standard guarantor agreements.

It's interesting to get your views which aren't categorically warning me away from HB tenants. Having posted the same question on Lanlordzone I received 2 replies which were both very anti both HB tenants and reliance on guarantors.

[Grampa]

Is the £819 figure a 4 weekly amount? If so that equates to £887.24 pcm but either way with the rent being £925 that would concern me and I think that would cause future problems with a affordability and is now raising a flag or two.

One way maybe be get a agreement that one of the guarantor's pays the rent by standing order and the tenant reimburses the guarantor. Also only do a 6 month tenancy to start with.

If you do go ahead you need to get a good application form filled out by the tenant. If you want one, send me a pm with your email address. But now with the extra info if it was me I would be leaning towards finding someone else.

[Melboy]

Don't forget there is a ceiling rent on what Councils will pay you by way of HB rent.

Just for the record Digger 40 I too have just off-loaded an inherited HB tenant and I too would never have a HB tenant again. Far too much hassle and dealing with DWP/DSS and their head in the sand attitude towards landlord's.

[Digger40]

Thanks again everyone for the posts. I think on balance I'll walk away from this one and look for a regular employed tenant who can clearly cover the rent with their earnings.

Cheers.

[Melboy]

Thanks again everyone for the posts. I think on balance I'll walk away from this one and look for a regular employed tenant who can clearly cover the rent with their earnings.

Cheers.

.................Is the right decision

Pity really because if it wasn't for the Government of all colours who keep meddling in the rental housing market over many years and making it much more difficult for good landlords to take on HB/DWP/DSS tenants.

I consider myself to be a very good landlord who does go the extra mile for my tenants but nobody shoves the bat where the Sun doesn't shine up me and Scummers/Scammers who are protected by some aspects of housing law which in no other word absolutely stinks.

[Dave A]

It looks like you've already made a decision (I would say the right one), but the only other consideration I would add is, with the second garuntor being self employed, you would need to see accounts or other evidence that his income is sufficient to pay his rent / mortgage as well as the one that is being defaulted. Self employed is a very broad umbrella and a self employed cleaner may be eminantly respecatble and trustworthy but may not have sufficient income to cover all your potential losses, whereas a Chelsea based plumber with an established business most certainly would.

No direspect intended to cleaners whatsoever, merely illustrating the different levels of income. Personally I consider anyone who works for themselves cleaning up other peoples mess to be in an admirable and undervalued proffesion.

Dave

[Mortitia]

Digger 40 - you are doing the right thing imo by looking for working tenants with either a good history of renting or with home owning guarantors.

With the HB single mother there was no guarantee that HB could be got and paid. You had no idea of this lady's possible partner - bet there is one somewhere just around the corner waiting to move in and scupper her benefit claim. I agree with Dave A that self employment is not ideal when looking for a guarantor - unless it's Richard Branson or similar.

For the virgin landlord you want 2 working tenants who pass credit checks with flying colours. Don' t stray from that path.

[Digger40]

Thanks again all. Now more sure than ever I want employed tenants, although having said that I'm considering one of those guaranteed rental schemes and have just posted a further thread to get some views on these schemes and the companies that offer them.

Cheers.