By Martin Goodman, Director at Rentshield
The Credit Information Amnesty of the National Credit Act came into play on the 1st of April 2014 but officially took effect on the 1st of June. It raised a fair amount of concern in the rental industry especially among landlords and estate agents renting out property to tenants.
The credit amnesty act wipes away any negative credit information from credit bureau records but only once the debt has been paid off. The amnesty will apply to all consumers which means, landlords searching for potential tenants will not be aware of any debt they may have had in the past. This makes the decision to choose a tenant based on a good credit record obsolete.
Credit checks have always been the benchmark for property management agents to distinguish between ‘good’ and ‘bad’ tenants, however, the Amnesty Act now makes it difficult to judge tenants on their bad credit history if there will now be no record of it.
All tenants who previously had a negative credit record and are looking at renting, now have the opportunity to apply for leases despite their bad credit history.
This is all good and well, but my concern is what happens when these tenants default or become slow paying tenants? If tenants over spend or are negatively affected by external factors they have no control over such as electricity, petrol and interest rate increases, the first thing they don’t pay for is rent.
I have heard many proposed solutions to this problem including increasing the deposit amount for new tenants. However, landlords need to know that a tenants deposit cannot be touched until after the tenant has moved out and can then only be used to pay for damages caused to the property by tenant or for non-payment. Therefore, increasing a tenants deposit doesn’t safeguard landlords from defaulting or slow paying tenants.
Another possible solution to the problem is asking new tenants to sign a surety. This translates to the tenant, together with a third party (surety), signing an agreement with the landlord stating that if the tenant is unable to pay the rent for a month the third party is liable to pay the rent on behalf of the tenant.
This system is flawed in my opinion. Even if the tenant has signed surety but has no money to pay the rental each month, the landlord still loses and the rent is now dependant on a third party who may take weeks to pay the rent. There is still no guarantee that the rent will be paid on time or at all.
A way in which landlords and agents can protect themselves against slow-paying and defaulting tenants is by using a residential property letting tool that deals specifically with defaulting and slow paying tenants, such as Rentshield. Landlords and agents can effortlessly lodge claims on the website portal when tenants have defaulted and the rental will be paid to them within 48 hours.
Therefore, there is no need to raise deposits or obtain surety and there is no cost to the landlord to be signed up to Rentshield’s services.
Renting a property is supposed to be a cheaper option than buying, but with all the current rental market requirements such as two months deposits and sureties, it is becoming completely unaffordable for the average tenant. Even if all requirements are ticked off, should the tenant default the landlord is still left exposed and without that months rental.
With Rentshield the landlord is fully protected against defaulting tenants, therefore, there is no need to worry about placing an ‘average’ tenant into your property due to the Credit Amnesty Act. The tenants are offered a zero deposit lease when signed up with Rentshield and due to this both the landlord and tenant can enjoy a positive renting experience.