Is there any income to rent ratio you look to for affordability?

by Readers Question

10:38 AM, 17th July 2020
About 4 months ago

Is there any income to rent ratio you look to for affordability?

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Is there any income to rent ratio you look to for affordability?

Hi All, We have our flat advertised for tenancy and we got a couple who are interested to move in. We asked for all the relevant info for the reference check from TenantVerify, but also asked for last 6 months bank statement/payslips, which they happily provided with no delay.

One partner has just started working after Uni in Dec 2019. The other partner has been in employment since Feb 2019.

The total household income is 40k gross. They were previously living in a shared accommodation paying £450 each, totalling  £900 so moving to our flat which is for £750 made sense for them. Rent payments for the last 6 months were on time as I could see on the bank statement.

The only concern I had is affordability, they both have a bank loan. Their balance is showing in (-) must be due to bank loan which they did make it clear in the Tenant Verification form. I have not yet submitted the reference check as I noticed this affordability issue. They have provided rent guarantor on the papers, not sure what the relation is so far, but can ask and get them for verification too if required.

Is there any income to rent ratio you look to for affordability?

Any advice here what we should do.

Kaps


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Comments

The Forever Tenant

11:16 AM, 17th July 2020
About 4 months ago

Sounds like the place is affordable from a month salary point of view. Assuming they are both earning roughly the same, this would equate to a household income after tax of around £2,800. The rental amount is only 26% of their take home pay. I would say that is very affordable.

As for loans, I think most people have them nowadays so can be hard to judge.

They provided you with several months of bank statements. The big question would be, are they more into the negative with each passing month, or are they going back towards the black. If the latter then that would indicate better financial planning. I am also not surprised if someone is in an overdraft after university. Those places are expensive now.

kaps z

11:35 AM, 17th July 2020
About 4 months ago

Reply to the comment left by The Forever Tenant at 17/07/2020 - 11:16
I just asked them about this given i wasnt comfortable initially. They suggested there is a students loan which they are paying back given one of the partners has just started the job (from last 8 months) and other partner finished uni like 1.5 years now so this is their first/second job.
The balance is same more or less in last 6 months. They arent paying but not increasing either.
They have sent me their savings account which has got around 2k and a guarantor which is their sister.. Do you normally reference check the guarantors too ?

I have checked the employers they have provided, they all match up. Their previous rent of shared accomodation was on time. Gut says they are Ok but may be rent insurance gurantee would think otherwise.

Sorry this is our second time we are in finding the tenants so all these questions.

david porter

11:39 AM, 17th July 2020
About 4 months ago

Would you prefer a applicant with Universal Credit?
If your applicant was a better credit would they be having a mortgage rather than a tenancy agreement ?

WP

11:51 AM, 17th July 2020
About 4 months ago

....and I thought checking out benefit tenants was a minefield! At least I go in from the start with the premise they can afford nothing.

kaps z

11:54 AM, 17th July 2020
About 4 months ago

Reply to the comment left by david porter at 17/07/2020 - 11:39
We just had 1 tenant as we moved to BTL ladder last year only so no experience or ever got a Universal credit applicant.
Having said that my previous tenants income was around 6k per year for a couple and they still were renting and not looking to buy. They could easily get mortgage but i think its everyones choice when they want to move to the property ladder. We bought our first house after 7 years of renting, despite my income was qualified for mortgage but we personally prefered to rent for various reasons.

Freda Blogs

12:26 PM, 17th July 2020
About 4 months ago

Yes, do reference check the guarantor

Jireh Homes

15:26 PM, 17th July 2020
About 4 months ago

In my experience Credit Agencies use a factor of 2.5, so for a rent of £750 pcm the minimum "total" salary would be £22,500. So for your prospective tenants well within guidelines and normally a guarantor would not be required.

Gunga Din

19:13 PM, 17th July 2020
About 4 months ago

That sounds a lot more comforting than my tenants in the post-industrial north-east of England (who by and large are reliable). The fact that they provided requested statements promptly is encouraging. Still complete all referencing, which they should assist with by the sounds of them. They're either good prospects or brilliant con-artists!

Art Dobson

20:29 PM, 17th July 2020
About 4 months ago

Discuss your concern with them, most tenants are good and willing to have a frank discussion.
Although remember in these testing times any tenant is better than a year of voids.
If you need to fill the place drop the rent and let the market offer you more tenants.

moneymanager

23:20 PM, 17th July 2020
About 4 months ago

A simple rule of thumb, a gross annual income of thirty times the monthly rent.

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