What is a bank reference?
If an individual is in the process of agreeing to a long-term financial commitment, such as a tenancy or lease on a property, a bank reference will probably be required by the landlord or the letting agency.
A bank reference is essentially a report of the bank on its customer’s future ability to meet its payment requirements under the lease/tenancy, based on their previous lending, credit history, transaction history, and so on. It also helps prove you are who you say you are.
As a prospective tenant, the landlord is essentially asking the bank to confirm that you are a good risk in terms of whether you are likely to be able to keep up with the rental payments. It is normally a check that is used when relatively small amounts of money are involved, or when you are embarking on a long term financial relationship, such as opening an account with a business.
If you have had problems in the past with paying bills on time, such as rent – be up front with your prospective landlord. It will be easier to explain now how this problem arose, and to show you have the means now to meet the future payments, than for the landlord to turn you down because your bank reference has thrown up a negative.
Although it does not involve the same long term financial commitments as a mortgage, a tenancy is sometimes treated in a similar way. The landlord will want to know that you have a history of being committed to paying bills regularly and have honoured past regular financial commitments. The risk of having a tenant in a property who stops paying could put a landlord off.
Unlike a credit check, with a bank reference the bank will not release any specific information to the person requesting the reference. Instead, what they may do is consider the financial commitment that you are considering making, and give the person requesting the reference a concise summary as to whether they feel you are a good risk for that particular commitment.
The bank will therefore look back over your finances during the time that you’ve had your account with them, and how well you handled any debts or credit that you may have had during that time.
Landlords or the letting agency usually have their own set procedure for carrying this out. Often, they will issue you with a form detailing the request that they wish to make to your bank. The bank will only provide the reference with your express permission, so such a form will typically include a section for you to complete.
The request will be specifically asking the bank about whether you are in a position to meet their particular financial commitment (rather than about the general state of your finances). The landlord or agent will normally then forward the request to the bank. Your bank will not give any specific information about the transactions associated with your account.
Typically, the bank will charge a fee for this service, but it is normally the landlord/agency that has made the request that will pay this fee.
What happens next?
If your bank reference indicates that you are not a suitable risk for the commitment, you will need to discuss the situation with the landlord or body who has requested it to see if there is anything else you can do to secure the agreement.
For further information see the article ‘obtaining a bank reference’.