Private paying tenants – How large and secure should their income be?

by Readers Question

10:04 AM, 16th July 2013
About 5 years ago

Private paying tenants – How large and secure should their income be?

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Private paying tenants – How large and secure should their income be?

We let out properties mainly to Housing Benefit tenants. Despite the general assertions on this site, we haven’t had substantial arrears, or substantial damage to our property. We know how we can short circuit those arrears, on the whole.

Both instances of arrears we have had however, have arisen under private paying tenants just like Mark’s experience.

I wonder how other landlords calculate affordability for private tenants. We don’t have high rents – about £500 on some properties and about £550 on others. We’ve found tenants who have been able to pay on relatively low earnings. What yardstick do other readers use?

Employers references are some help, but can be manipulated or falsified. Although a credit check can assist, there are limits to that.

We find that at least we know – until any further government cuts -what housing benefit (or equivalent) will be received, although this is now complicated by the contribution to council tax now required of HB tenants.

In contrast, an employee can be fired at any time. How far do others go in enquiries of the employer?

Edwin income



Comments

Ray Davison

9:53 AM, 17th July 2013
About 5 years ago

Hi Edwin,
A rough rule of thumb for earnings would be that Gross salary should be at least three times the rent figure. As you say at the lower levels this can be reduced a little as at lower earnings levels a smaller proportion of income is taken as tax and NI. Of course everyone also has a base of essential expenses like food, heat etc - oh and sky tv of course!

Its hard to see how employers references can be falsified or the the company would be making themselves liable. Never accept ANY references from the tenant as in these cases they can be forged. It is more work but always obtain your own references from employer, ex landlords etc. Also, use Landlordreferencing.co.uk as they have an ever growing database of problem tenants.

Generalisations R Unhelpful

10:25 AM, 18th July 2013
About 5 years ago

Reply to the comment left by "Ray Davison" at "17/07/2013 - 09:53":

My gross salary is approximately 9 times my rent. I do not have Sky TV. I was brought up on an inner city council estate. I have an honours degree. I manage approximately sixty staff and a budget of over £2m.

No, I'm not a typical working class tenant, so generalisations/jokes about tenants having sky tv are as helpful as tabloid insinuations that all foreigners are bad and all people on benefits are scroungers.............i.e. complete garbage.

I'm sure that if a tenant suggested that all landlords embodied the behaviour and philosphy of Peter Rachman you would be quite offended, and rightly so.

Being an owner of property rather than one who rents it, does not make the owner a better person nor does it give the right to belittle those who provide an income to that person. In fact, I would suggest any such belief would actually demonstrate the opposite. Is seems to me that there are good and bad in all walks of life and any person who looks down on another purely on the basis of socio-economics appears to say much more about him/herself as they do about the person who is the object of their unjustified derision.

Ray Davison

13:53 PM, 18th July 2013
About 5 years ago

Reply to the comment left by "Generalisations R Unhelpful" at "18/07/2013 - 10:25":

And that helps answer Edwins' question, how?

I was not generalising. I was quoting facts as I have experienced them. In eight years over ten properties I have never known a tenant that did not have Sky TV despite many of them being on Housing Benefit and some of them not paying their rent. They always manage to have their Sky TV. They clearly see it as an essential and to some more important than a roof over their heads.

Graham Clark

19:06 PM, 19th July 2013
About 5 years ago

A gross salary of three times rent does seem about reasonable, both from my experience as a landlord and someone who has previously rented a property.

However, as a landlord, the stability (rather than just the amount) of that income should also be considered.

Ray Davison

19:54 PM, 19th July 2013
About 5 years ago

Reply to the comment left by "Graham Clark" at "19/07/2013 - 19:06":

Absolutely correct Graham. Basically if they have not been employed by their current employer for at least the period that gives them employment rights then they could be out of work tomorrow. That used to mean one year although the coalition Govt was going to take it back to two years as it used to be. If I am honest, I do not know if that change has been made yet.

2:01 AM, 20th July 2013
About 5 years ago

I couldn't care the less what a prospective tenant's income is.
Providing they pass a RGI check it wouldn't be my problem.
It would be the RGI company's one if a tenant stopped paying rent as ALL I have to do is submit the claim and then about 9 months later the tenant is evicted during which time I receive the RGI rent and NO legal costs.
It would cost me £99.00 for the facility.
So what do I care about the wages that the tenant earns!!!?
Remembering that if someone passes the RGI check and then providing they pay the full rent by whatever means then I take out another RGI policy with NO further RGI check required..
This means a tenant could be unemployed and still retain a tenancy with me due to another RGI policy being possible.
In practice very few people would be able to sustain the full rent in the event of redundancy.
But LHA is payable at the full rent for 13 weeks and then reduces to the appropriate amount.
So this gives the tenant time to find another job or resource the monies needed for the rent to prevent me submitting a RGI claim.
Once the RGI claim is submitted they must leave.
The RGI claim cannot be undone.
If a tenant is motivated to stay they will do what they can to ensure I don't submit a RGI claim.
With RGI I am in control of the tenant.
Without it the tenant holds all the cards.
I prefer to be in charge; of the tenancy NOT the tenant!!

Ray Davison

9:04 AM, 20th July 2013
About 5 years ago

When talking about earnings, you need to consider affordability as well of course.

You need to see at least three months CONSECUTIVE bank statements to see where their income goes. If they have other committed outgoings (Such as loans etc) then you need to factor that in as well. Your new tenant can cut down on socialising to pay the rent but they will not be able to stop paying a loan mid term.

@Paul
I don't know your past experiences in detail but clearly you have been badly burned in the past and hence your focus on RGI. If this works for you then great but its not the only consideration. When referencing tenants I also consider the potential hassle and long term view as well. I would rather look at things in this way than just rely on RGI to solve all my problems and then have voids between the tenants that RGI has kicked out.

13:53 PM, 20th July 2013
About 5 years ago

Reply to the comment left by "Ray Davison" at "20/07/2013 - 09:04":

Yes my response was perhaps simplistic; in that I was only referring to the issue of income.
As far as I am concerned RGI is the foundation of a good tenancy.
Looking at all the other issues in a holistic sense; makes sense!!
As you allude to it; it would be a bit silly obtaining tenants on whom you had to repeatedly submit RGI claims for.
So yes all the things and others you didn't state should be carried out but all on the basis that the tenant has RGI on them..
So reliance on RGI whilst it might pay out for arrears is only the last resort for a wrongun tenant.
Do all the DD correctly and hopefully you won't need to claim on the RGI!!

Mick Roberts

16:42 PM, 29th July 2013
About 5 years ago

Reply to the comment left by "Ray Davison" at "18/07/2013 - 13:53":
My tenants think I'm nuts when I haven't got Sky at £73 a month.
This is when I'm checking their bank statement trying to help them out with their finances & they say 'If I give that up, what will the kids watch?' Last time I looked, Freeview FREE has about 30-40 FREE channels.

Ray Davison

17:34 PM, 29th July 2013
About 5 years ago

Reply to the comment left by "Mick Roberts" at "29/07/2013 - 16:42":

Spot on Mick, It seems to be a given that they have Sky even when they are complaining about not being able to afford food. I certainly cannot justify Sky for myself at the moment due to the non payment of rent by LHA tenants who do have Sky!

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