Surge in demand for guarantors under Renters’ Rights Act

More than half of tenants could need a guarantor following the introduction of the Renters’ Rights Act, a deposit scheme claims.

Research by Zero Deposit suggests the proportion of local authority areas where tenants are likely to fail affordability checks could rise from one in five to almost one in two.

Under the act, landlords and agents can no longer accept large amounts of rent in advance.

Expect guarantors to become an increasingly common requirement

According to the data, average rents currently standing at £1,438 per month, equivalent to £17,256 per year, tenants would typically need to earn at least £43,140 annually in order to pass affordability checks.

However, average earnings across England currently sit at £41,859, leaving the average renter £1,281 below the required threshold.

Across England’s 288 local authority districts, tenants are likely to require a guarantor in 19.8% of locations due to average earnings failing to meet affordability requirements.

Sam Reynolds, CEO of Zero Deposit, said under the Renters’ Rights Act, landlords will seek greater financial protection, meaning more tenants will need a guarantor.

He said: “While the Renters’ Rights Act is designed to improve security for tenants, it also significantly changes the way landlords manage financial risk within the private rental sector. With restrictions on upfront rent payments and fewer traditional safeguards available, landlords and agents naturally place greater emphasis on affordability checks and income protection when assessing prospective tenants.

“As a result, we expect guarantors to become an increasingly common requirement for renters who fall outside standard affordability criteria, particularly younger tenants, overseas applicants, self-employed workers, and those moving to high-cost rental areas.”

Tenants may not have access to a suitable guarantor

Across England’s 288 local authority districts, tenants are likely to require a guarantor in 19.8% of locations due to average earnings failing to meet affordability requirements.

London is home to 22 local authority districts where average incomes fall below the affordability threshold, while the South East contains a further 21 such areas.

However, Zero Deposit warns many tenants may not have access to a suitable guarantor.

Mr Reynolds adds: “The challenge is that the traditional guarantor model is no longer practical for many renters. Not every tenant has access to a suitable guarantor, and even when one is available, the referencing and verification process can introduce delays at a point where rental properties move extremely quickly.”

According to the English Housing Survey, 21.5% of private renters pay more than one month’s rent in advance.

Zero Deposit claims that, with this option no longer available to landlords, many are expected to seek alternative forms of financial protection.

The deposit company suggests landlords could respond by increasing the affordability threshold from 2.5 times income to three times income.

If this becomes the new industry standard, Zero Deposit calculates that the proportion of local authority districts in which the average tenant fails affordability checks would rise from 19.8% to 47.6%, as average earnings in 137 local areas would fall below the required level.