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Rent affordability calculator for tenants

by | Nov 27, 2022

Introduction

Amongst the many things that go into finding a new home is thinking about if you can afford the rent. And most people need a quick and accurate way to do so.  

Much like a mortgage in principle is able to show you quickly what you can afford to buy, a rent affordability calculator can tell you quickly what you are able to rent.

And this is what this article is about, rent affordability calculators.

What is rent affordability?

Rent affordability relates to whether the cost of the rent in the agreement is going to be able to be afforded by the renter. The factors that affect this are of course the income that the person renting earns and what this is in relation to the rental price.

However, there are cases where it can be perceived that there is good rent affordability from someone looking to move into a property but there are other factors that stop them from being allowed to rent. This may include a poor credit score or the person’s lifestyle not matching the property they are looking for.

For example, if someone has good rental affordability for a one-bedroom flat because they are able to earn significantly more than the rent but are in a lot of debt and have a pet, they would likely be refused the room because of the size of the property, for the animal and their credit history excluding them from the property. 

Examples like this show how rent affordability is only a small part of the picture when looking at if tenants are actually suitable for a home.

A man and woman working out their rent affordability

How does salary impact my rent affordability?

Salary is the biggest factor when determining whether a tenant is able to move into a property and a lot of letting agents, property managers and landlords like to go with tenants that have an annual income thirty times the rent. Alternatively, you could find 2.5 times the amount of yearly rent and use this figure.

However, there is a lot more that is involved with tenant referencing and rent affordability is one piece of information that will be used.

Related to salary, the person who is doing tenant referencing will also look at the risk involved with your job. If you earned a lot in a few months but throughout the rest of the year there was a lack of income, this is bad for the perceived rent affordability of a tenant.

At the same time, the income produced from a business that is in your own name and the business doesn’t have 3 – 5 years of receipts to show it is consistently able to produce income is also seen as riskier.

As a result, tenants who are approved for rooms first when it comes to their salary are those who have worked in stable jobs for a long time and their salary is in relation to the amount of rent the landlord is charging by at least thirty times.

Is a guarantor useful to help increase rent affordability?

Yes, a guarantor can definitely help rent affordability, especially for those who do not have the right credit report to get approval for a property and also do not have the highest salary.

This can include students and those who are DSS tenants. You can use a guarantor company to help increase your rent affordability but it is more common to use a close friend or family member.

If you do choose to use one, they will have to earn three times the annual rental income of the property per year whereas a tenant will only have to earn 2.5 times the annual rental payments. However, this is just a general rule most letting agents and landlords use.

So, for example, if a tenant is only earning two times the annual rental income of a property which means they need a guarantor, the guarantor will have to earn three times in order to cover the rent and approve the tenant for living in the property.

If a tenant finds they cannot get a guarantor, they could look into our article talking about how to live rent free.

Rent affordability calculator

Rent affordability calculators make things simple by being able to produce a yes or no answer on whether you can afford a certain property based on the metrics you have inputted. The below calculator will tell you if you can afford the property you’re thinking about renting.

Table of monthly rent, tenant and guarantor income

When looking at rent affordability, the amount of rent that can be afforded depends on the tenant’s income. Through this table of using the 2.5x multiplier for tenants and the 3x multiplier for guarantors, you can see how rent is afforded.

If the income of the tenant is not sufficient for the monthly rent they need to pay then the guarantor will be able to step in if their income is enough to pay the rent.

Monthly Rent Tenant (2.5x) Guarantor (3x)
£300 £9,000 £10,800
£400 £12,000 £14,400
£500 £15,000 £18,000
£600 £18,000 £21,600
£700 £21,000 £25,200
£800 £24,000 £28,800
£900 £27,000 £32,400
£1,000 £30,000 £36,000
£1,100 £33,000 £39,600
£1,200 £36,000 £43,200
£1,300 £39,000 £46,800
£1,400 £42,000 £50,400
£1,500 £45,000 £54,000
£1,600 £48,000 £57,600
£1,700 £51,000 £61,200
£1,800 £54,000 £64,800

Why is rent affordability calculated?

Rent affordability is calculated by landlords and letting agents to see if the tenant they are bringing into a property will consistently be able to afford the rental payment for the property or room they are letting every month.

This is taken so seriously because rent arrears are something landlords should avoid at all costs. Especially if they have a mortgage on a house. If they fail to pay their mortgage due to the tenant failing to pay their rent, this could result in late payment fees and worse yet may cause the lender to repossess the house and take back ownership.

This is costly and can bankrupt a landlord in the worst cases. In fact, rent affordability is so important that the rules surrounding them (income being 30 times the monthly rent) are only treated as a minimum amount of rent.

How to estimate the cost of monthly rent and bills

Looking at the amount you have to pay for bills is also vital in the search for a property as this can significantly increase the living costs associated with a house. 

From water bills to the price of gas and electricity, all these costs can add up and vary greatly depending on the property you’re looking at. Because of this, monthly costs could be seen as almost just as important as the earned income of a tenant.

Water bills

Water bills are charged to the landlord but sometimes, depending on the tenancy agreement the landlord could ask you to cover it.

If tenants fail to pay the rent, they may be held responsible for it by the council if it is stated in their agreement. Because of this, a landlord will likely tell the council when a new tenant moves into a property so they can update them on who is responsible.

Ultimately, however, if the tenant refuses to pay which results in eviction, the landlord will have to cover any water bill arrears but they may be able to get around this by bringing the tenant to court.

Service charges

Service changes are the most common in accommodations where there are shared facilities that need to be taken care of in a property. For example, if you have bought a new home that has a shared garden with your neighbours you may have to pay for service charges so a gardener can visit and maintain the space.

As well as this, those who have bought the property as a leaseholder (where you own the property that is built on land you do not own) may also have to pay service charges. The land they do not own is owned by the freeholder but the freeholder may still state the leaseholder should bear some responsibility for the land and pay some sort of service charge.

Service charges may go towards the following in a property to make the living space of a building more habitable for tenants:

  • The maintenance of shared roads
  • The maintenance of outdoor spaces
  • Repairing damages in communal areas
  • Topping up a deposit for unexpected damages to a block of flats (for example if the roof of a property break, the deposit can be used to fix it for all tenants)

Council Tax

Council tax is based on the value of the homes that the tenant lives in. The higher it is the more they will have to pay. Council tax like other charges may be covered by the landlord and included in the rent but it is up to the tenant to know what they owe by checking their tenancy agreement.

Gas & Electricity bills

Gas and electricity are there to pay for all the costs of operating a property and the appliances in it. You may have to pay a metre every month but sometimes you can pay online, through an app or the landlord can automatically pay for it and charge for it through the rent.

A woman calculating if she can afford rent after paying gas and electricity

Upfront costs

Upfront costs may have to be taken into consideration for tenants too. This can include paying for rent upfront. For example, tenants who aren’t able to prove they have a consistent income and have a rent guarantor, as a result, may pay up to six months of rent upfront.

This gives landlords a better peace of mind that if a tenant no longer pays their rent they at least covered the first six months which is usually the first mixed term of a tenancy.

To conclude

Overall, it is clear that the use of a rent affordability calculator may impact you a lot in finding what property you should be paying for. It is a quick and accurate way to see what you can afford. Having said this, be sure to check out all the other factors that go into rent affordability so you know you’re making the right decision.

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Donnell Bailey

Property expert

Donnell is a property expert focusing on the property market, he looks at a combination of legislation, information from property managers, letting agents and market trends to produce information to help landlords.

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