The cost of renting in the UK is increasing – rents across the UK rose 2% in March 2018 and renters now pay an average of £919 a month. For those based in London, the average rent is £1,560. As rents rise far in excess of wage growth, it becomes increasingly difficult for tenants to cover their monthly housing costs. The risk that this creates for landlords is something that many have been attempting to provide for by asking for rental guarantors. If you’re asked to be a guarantor for someone else’s rent then what exactly is involved and how should you handle it?
Why is a guarantor necessary?
Landlords tend to ask for a guarantee where there is any risk that the tenant may not be able to make the rental payments on a property. So, for example, landlords renting to students often ask for guarantees because students don’t have an income. Anyone who doesn’t pass a credit check may also be asked to provide a guarantor, as well as those who are under 21 and tenants who have worked for their current employer for less than six months. Anyone on a low income who can’t show any savings to cover future rental payments may not be able to rent without a rental guarantor. The use of guarantors is now widespread for things like loans, and utility payments, but this is fundamentally nothing new.
What does a guarantor do?
Effectively, the guarantor will step in and make the rent payments if the tenant is not able to do it themselves. If the guarantor doesn’t make the payments then the landlord will be able to take legal action against the guarantor. The guarantor will be liable for any rent that goes unpaid but may also find that the landlord asks them to cover other costs, such as the expense of repairing any damage that the tenant has done to the property.
Who can be a guarantor?
Guarantors must be over the age of 18 and landlords tend to insist that the guarantor lives in the UK. This is because it’s much more difficult to take legal action against a guarantor if they are based overseas. Most landlords also insist that the guarantor is a UK homeowner and some may require a guarantor to be able to show that they have enough income to cover any potential payments that must be made under the guarantee.
What’s the process of becoming a guarantor?
Guarantors will be asked for references and also credit checked, just like a tenant
Guarantors may be asked to provide proof of homeownership and/or sufficient funds to cover the liabilities under the tenancy agreement
A guarantee document will be produced – legally, this must be in writing and set out the rights and obligations that the guarantor has
Guarantors must-see and review the tenancy that they are guaranteeing – if the guarantor is not given enough opportunity to read and question the tenancy agreement, and raise any points that they don’t understand, before signing the guarantee then the guarantee may not be valid.
What do you need to think about if you’re planning to be a guarantor?
How well do you know the person you’re being a guarantor for? If you don’t know them that well, or you’re not 100% sure that they will do their best to make the rent payments themselves, then you might want to think twice about taking on this legal obligation.
Can you afford to pay the rent? Many people agree to become a guarantor without really thinking about the potential consequences. If the guarantee is activated then you will have to cover, not only your own outgoings but also –potentially – all the payment requirements under the guarantee. For example, if you’re guaranteeing a tenant in London paying an average rent and you have to cover eight months worth of payments that is a minimum of £12,480.
What does the tenancy agreement require of you? You might find that you’re actually required to do more than cover the cost of the rent – make sure you read the tenancy agreement to see what extra expense there could be.
When does the guarantee come to an end? This should be stated in the guarantee document but there is no standard length of time. Some guarantees are for a fixed period – e.g. a year – but others are open-ended. If you have an open-ended guarantee then you would remain liable as long as the tenancy exists.
Are you guaranteeing a joint tenant? Especially in student houses, it’s common for guarantees for joint tenants to cover the entire rent. So, you might think you’re only guaranteeing the rent of the person who has asked you to be their guarantor but, due to the joint tenancy, you will be liable for all the rent for the entire property. In that situation, if there is a default then the landlord would reach out to all the guarantors – but if (in a worst-case scenario) none pay up then the responsibility could be yours.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read more about Alex Hartley