June 21, 2023
What is a Property Guarantor?
As a landlord, you may be familiar with the term ‘property guarantor’. If not, then read on to find out what is a property guarantor, and why you may need to ask prospective tenants for one. We’ll also explore other issues and common questions relating to property guarantors such as, “What is a property guarantor agreement?” and “Can you be a guarantor for two rented properties?”
What is a property guarantor?
A property guarantor is an individual who agrees to take on the financial responsibility of a tenant’s rent and any potential damages if the tenant is unable to fulfil their obligations. The guarantor acts as a safety net for landlords, providing an assurance that the rent will be paid, even if the tenant encounters financial difficulties.
Usually, a guarantor is a relative or close friend of the tenant. They normally need to be able to demonstrate that they have a good credit history and income or have savings above a certain amount.
Why does a landlord need a guarantor?
When answering the question “what is a property guarantor?” There are several reasons why landlords may look for guarantors in their tenants.
Provides financial security… Having a guarantor mitigates the rental risk by providing an extra layer of financial security. If the tenant defaults on their rent, or if they damage the property, the guarantor becomes responsible for covering these costs. This can be especially helpful in certain situations, for example if the tenant has no credit history, is a student, is renting for the first time, is unemployed or has recently moved to the UK from overseas.
Guarantees payment… Landlords rely on the timely payment of rent to maintain their properties and meet financial obligations. A guarantor ensures that even if the tenant faces unexpected hardships, the rent will still be paid promptly.
Helps reduce void periods… By requesting a guarantor, you increase the chance of keeping your tenants in place for the long term. This helps to reduce void periods and promotes a steady stream of rental income, without having to keep spending out on sourcing new tenants.
What is a property guarantor agreement?
As well as understanding what is a property guarantor, you may have heard of a guarantor agreement. What exactly is this?
A guarantor agreement is a legal document which is legally binding once signed by the guarantor. The document covers such issues as:
How long the guarantor agreement lasts… In some cases, the liability of the guarantor may end only when the tenancy is legally concluded. This means that the liability exists even if the rent is increased.
When a landlord can ask the guarantor for money… In most instances, this is when the tenant is unable to pay their rent, or if they have caused damage to the property.
What happens in a joint tenancy… If accommodation is shared between tenants under one tenancy agreement, the guarantor agreement will need to stipulate whether there is just one or several guarantors who are liable to pay the rent.
Can you be a guarantor for two rented properties?
As part of this discussion, you may wonder “Can you be a guarantor for two rented properties?” The answer is that yes, it is possible to be a guarantor for as many rental properties as you want. However, a guarantor usually needs to earn around three times the rent of the tenancy they are covering.
A guarantor needs to consider that they increase their financial responsibility and their financial liability the more properties they act as guarantor for. It is important that a guarantor considers their financial position carefully, and seeks legal advice before taking on the level of commitment that is needed.
Is a property guarantor necessary?
It isn’t always necessary to ask your tenants for a property guarantor, but it can certainly reduce the risk of a tenant not paying or causing damage to your property.
An alternative way of mitigating the risk with your rental property is to use a guaranteed rent scheme such as the one offered by City Borough Housing.
Included in the monthly rental offer, which is a good market rate, we deal with everything from making sure your property is legally fit for rental to sourcing tenants, collecting rent, handling day to day tenant queries and carrying out any necessary maintenance work. If for any reason, your property experiences void periods, it is reassuring to know that with a guaranteed rent scheme, you will continue to receive a regular monthly income, as you also will if your tenants default on the rent.