Yes – There are two common ways of calculating rent affordability:
Assessment based on research – Research by the housing and homelessness charity Shelter suggests that a rent that equates to at least 35% of gross annual household income is not an affordable rent. Calculate your maximum affordable rent as follows:
Gross Annual Household Income X 0.35 = Maximum Affordable Rent Per Annum
If you don’t have an income that exceeds this level you will almost certainly fail the referencing though proof that you have savings of at least 35 X monthly rent would be sufficient to satisfy any affordability assessment.
Assessment used by tenant referencing companies – Tenant referencing companies calculate affordability by multiplying the monthly rent by 30 and if the gross annual household income does not equate to at least this amount it is not an affordable rent. Calculate your maximum affordable rent as follows:
Gross Annual Household Income / 30 = Maximum Affordable Rent Per Month
For the purposes of this calculation, gross annual household income should not include any Universal Credit, bonuses, overtime or income from temporary or zero-hours contracts.
Finally, some insurance products available to landlords are linked to the tenant’s affordability assessment e.g. rent guarantee and legal expenses insurance. Insurance is a risk based business, and where a tenant fails to meet a certain affordability threshold set for that product, they are ‘perceived’ to be higher risk and the landlord may not be able to purchase that product – this will of course influence a landlord’s decision to accept (or decline) an application for a tenancy.
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