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What money does a rent guarantor need to earn?

by | Nov 23, 2022

Introduction

As a result of some tenants not being able to access sufficient tenancy referencing, rent guarantors have to step in and be able to pay rent on behalf of the tenant if there are ever rent arrears. As a result, it would make sense for these guarantors to have to be financially stable and earn a certain income in order to step into this role as a tenant.

If they don’t the tenant may still struggle to be able to pay, having two people who aren’t earning enough to pay rent in the property and leaving the landlord still in rent arrears. This is why landlords have to have rules around what a guarantor must earn. Read on to find out what this figure should be and how to safeguard yourself as a landlord against higher-risk tenants such as students.

A guarantor signing up to clever rent for a tenant

How much money should a guarantor earn?

Guarantors are written as someone responsible for the payment of the tenant’s rent if the tenant cannot pay and are legally held responsible for this.

The figure most landlords and letting agents go with is being able to make three times the annual rent that the tenant they are providing cover for is paying. In order to make sure this happens, usually, a guarantor has to be earning at least £40,000 for the lowest priced properties in the UK.

As you can imagine, as properties become more expensive, the eligibility for a guarantor becomes harder to meet. It is common for some guarantors to have to earn well into six figures as a result. Adding to this, guarantors that wish to cover multiple properties and become a guarantor twice must earn even more.

Who can become a guarantor?

Guarantors should be a relative or close friends of those who are trying to rent a property.  For example, if they are a student or DSS tenant with poor credit referencing. However, this is not mandatory as you can use guarantor companies and find landlords that accept DSS without guarantors. Either way, the process is certainly simpler with a guarantor in place who earns enough money.

Some warning signs that most landlords tend to avoid are guarantors that are retirees, don’t own property themself or live abroad. These are all things that make a guarantor be considered riskier.

A soft or hard credit check may be asked from a landlord too in order for the guarantor to be involved in the agreement. But this varies greatly on the type of landlord.

Guarantors must also be over the age of 21 as this is considered a more responsible age for landlords where people are less likely to get into unnecessary debt and their earnings would have significantly increased.

How does rent price impact the required income for a rent guarantor?

So the general rule for this is that the guarantor has to earn at least three times the income that the tenant is charging for rent. 

For example, if the tenant’s rent is priced at £800 per month. This would work out to £9,600 per year and the guarantor would cover this £800 rent with at least a £28,800 per year salary (£9,600 x 3). 

Having said this, this is where credit checks are important because if the tenant had a credit check that came back to show they were in £10,000 worth of debt for example. This would mean the guarantor’s £30,000 salary would not be sufficient and the tenant would have to find a guarantor who earns more.

When does the guarantor’s responsibility end?

In order to find out how much responsibility a landlord has to a tenant, you would have to check the tenancy agreement in question. Each guarantor would have signed the tenancy agreement differently and it may be the case they have agreed to continue with the length of the tenancy agreement.

However, other tenancy agreements have clauses that allow the guarantor to re-sign the agreement or have a say every time there is a break clause in a tenancy or there is a section 13 issued to raise the rents.

A guarantor having to pay the debt left behind from a tenant

It is worth noting that because the guarantor and the tenant will usually have a personal relationship with the tenant, often these kinds of legal disputes are resolved verbally anyway.

Realistic examples include tenants speaking to their close friends or parents to resolve issues. In this way, you can see how a guarantor should have the same vested interest in a property as the tenant, reducing disputes between both parties.

However, it is still possible for there to be arguments between a guarantor and a tenant. So looking at the laws surrounding guarantors from the government website here would be a good idea.

Can you use combined household income to act as a guarantor?

No, you cannot use the combined household income to gain approval as a guarantor. However, being a homeowner may improve the score in a soft credit check which means a guarantor may be able to have a better perception of the landlord and then gain approval to become a guarantor in the first place.

It does not matter if the guarantor is the sole homeowner of a property or they own it with a civil partnership.

How to sign a guarantor agreement

Guarantor agreements like this one can be signed by a high risk tenant who wouldn’t be eligible otherwise for a property otherwise without a tenant finding a guarantor, the guarantor speaking to the tenant and agreeing on a price they are willing to cover.

The tenant and the guarantor together can then go ahead and find a property that is able to be let out with the agreed rent and when they are willing to move forwards, the landlord will ask for a guarantor in which case they will wet sign the tenancy agreement or they can do it using an online digital signing software.

How long does a guarantor agreement last?

When there is an agreement in place between a guarantor and a tenant, there is usually no rule about how long the agreement lasts. It will just depend on the length of the tenancy agreement.

Guarantors should also be aware that if there is any rent increase in the property such as if the landlord issued a section 13, they have to give their consent to this. However, this also depends on the tenancy agreement involved.

Because tenancy agreements with guarantors usually involve close friends and family members, it is rare that there are conflicts in this way. 

What benefits and drawbacks should you consider as a guarantor?

If you are a guarantor, chances are you are providing rental payments for someone you care about such as a family member or a friend. This can be rewarding as you allow the tenants to live in a property they would otherwise not have access to because of their financial situation or credit report.

In the process of becoming a guarantor, you also expose yourself to a lot of risks. These risks may involve the tenant not paying rent on time and the guarantor losing money as they have to cover the rental payments.

Debt as a result of a guarantor not earning enough money

In addition, a guarantor also has to consider the personal relationship they have with the tenant. If they agree to cover rent and the tenant doesn’t pay rent as much as the guarantor would expect, this could lead to a disagreement and ultimately, the guarantor is always responsible for paying if the tenant cannot.

As a result, you may have to pay a lot more rent than expected and have to leave the tenancy agreement as the nearest opportunity. This could leave the tenant who is signed in to the agreement without the security of their home and a personal dispute you would have to settle in your one time.

What credit checks do you need to become a guarantor?

It is typical for a landlord to conduct a credit check on a guarantor who wishes to cover rent for a tenant. Without this check, the landlord cannot say with certainty that the tenant is able to pay the rent if it is needed.

However, the credit check has to be with the guarantor’s consent and the check also has to be a soft 

credit check that includes information that is already available to members of the public.

This is not necessary for a landlord but would be a smart thing to do because it tells them a lot about the financial security of the guarantor who is going to be paying the rent in a property given there are rent arrears from the tenant.

Does being a guarantor appear on your credit report?

Being a guarantor doesn’t appear on your credit report in general. However, there are things you have to be aware of in the process of signing up as a guarantor as there are scenarios where a credit score can in fact be altered.

For example,  if the tenant of a property cannot make their rental payment and you have to, this transaction to pay rent will be shown on a credit report. This isn’t necessarily a bad thing. However, if you cannot make this payment and you fall into rent arrears or you become overdrawn on a bank account, this will definitely have an impact on the health of your credit report.

In addition to this, the agreement with a renter has the potential to create a financial association with the renter which may also show up on a credit report.

Further to this, if a guarantor signs multiple guarantor agreements and perhaps signs up twice, they are putting themselves at further risk of not being able to pay because if both tenants stop paying their rent, they have to cover a lot more money than expected.

Can the guarantor have bad credit?

A guarantor can have bad credit. But this is usually due to the letting agent or landlord not properly checking over the guarantor’s credit history. As a result, they may skip some steps.

For example, if it can be shown through a soft credit check that a landlord is able to show a guarantor they have a poor credit score, it is likely that the guarantor won’t be selected to cover rent in the property.

A guarantor signing up to cover rent after they were approved tenancy referencing

Will being a guarantor affect my chances of getting a mortgage?

Unless the process of being a guarantor causes rent arrears or a guarantor to fall into debt, then the credit score is unlikely to be affected. This also means the ability to find a mortgage shouldn’t be affected as a result as a lender will look at the credit report of a guarantor in order to approve them.

Can a student use a guarantor?

Yes, a student can use a guarantor and they are often only accepted into accommodation if there is a guarantor in place. As a result, a tenant can have a poor credit check, no job and no history in place and still gain approval for a property. To check what your credit score is like if you’re a student click here.

As well as using a guarantor, it is common for a student to have to pay rent upfront because of their lack of income. Typically, landlords will charge 6 months of rent upfront if they want to bring a student into a property as well as having a guarantor in order for them to take as little risk as possible.

Can students be guarantors?

In general, a student will not pass the referencing checks to become a guarantor whether that be for other students or for someone else. This is due to them usually having no earned income unless they can do it part-time or with a business.

You may have heard of guarantors for students rather than students being guarantors. This is a more common scenario in the property industry as students try to find accommodation without sufficient tenant referencing.

In conclusion

Looking at things in general, guarantors need to earn around three times the rental payment of a property. However,  there are also other things a landlord can look at to improve the chances of a guarantor being able to make the rental payments for a property.

This means the tenant will be able to pay their rent to a landlord on time and all parties in the agreement will have their needs met.

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