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Rental Calculations used by Estate Agents
senzafine
Posts: 1 Newbie
can someone please help me? i have been told that when you want to rent a property the estate agents do a calculation to determine how much you can rent before you have to have a ganrantor. does anyone know what this calculation is?
have been told 30 times the monthly rental of the property, also some one said 12 times then divide it by 3 or could be 10, i dont know lol... help is needed thank you
Barry
have been told 30 times the monthly rental of the property, also some one said 12 times then divide it by 3 or could be 10, i dont know lol... help is needed thank you
Barry
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Comments
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The rent should be less than 40% of your gross annual income to pass on affordability. Or to put it another way, your income needs to be more than 30 times the monthly rent. If the rent is £600pcm, your income needs to be greater than £18k. 0
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rosysparkle wrote: »The rent should be less than 40% of your gross annual income to pass on affordability. Or to put it another way, your income needs to be more than 30 times the monthly rent. If the rent is £600pcm, your income needs to be greater than £18k.
Bless. It's sweet that old-fangled things like savings aren't allowed for on a money SAVING expert site. Luckily there are some intelligent agents round my way, show them some CASH and these silly rules fly out the window faster than you can say employer's reference!0 -
i don't accept DSS (housing benefit) but my current tenant paid 6 months in advance to show they were serious about renting the property, so i accepted.0
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Bless. It's sweet that old-fangled things like savings aren't allowed for on a money SAVING expert site. Luckily there are some intelligent agents round my way, show them some CASH and these silly rules fly out the window faster than you can say employer's reference!
The 'silly rules' aren't set by letting agents but by the referencing agencies. The OP asked what criteria the referencing agencies set for affordability (only one small part of referencing), I answered with the facts. I am not sure why you are being quite so patronising! If you are not and I have simply misunderstood your tone, then I apologise.
Savings can be taken into account by referencing agencies in any case.0 -
rosysparkle wrote: »The 'silly rules' aren't set by letting agents but by the referencing agencies. The OP asked what criteria the referencing agencies set for affordability (only one small part of referencing), I answered with the facts. I am not sure why you are being quite so patronising!
That's odd, I read it as the OP asking what calculation estate agents do. The fact is there aren't hard and fast rules, it depends on savings, tax credits of whatever kind, etc. etc. and in my experience each agent has their own methods.rosysparkle wrote: »Savings can be taken into account by referencing agencies in any case.
Whereabouts in your "40% of your gross annual income" rule that you stated above does that fit in? Only as far as I know it doesn't hence my pointing out savings are taken into account. I just side step the whole thing with cash in hand, you should see their eyes light up!can someone please help me? i have been told that when you want to rent a property the estate agents do a calculation to determine how much you can rent before you have to have a ganrantor. does anyone know what this calculation is?
The best thing to do is to ask the agents you are considering using rather than relying on rules that the agent may or may not actually use and if they do use rules they get chucked away pretty fast when it suits.rosysparkle wrote: »The rent should be less than 40% of your gross annual income to pass on affordability. Or to put it another way, your income needs to be more than 30 times the monthly rent. If the rent is £600pcm, your income needs to be greater than £18k.
The funny thing is, if this rule was standard then how come some landlords on the forum have said they will respond to the interest rate rises pushing up BTL mortgage costs by putting the rent up
. They are failing to realise that their tenant's salaries aren't going up nearly as fast. So that means tenants will just be priced out of the market and the landlord will have a nice empty property or putting the rents up regardless of the tenant's income would be breaking the "rule". 0 -
rosysparkle wrote: »The rent should be less than 40% of your gross annual income to pass on affordability. Or to put it another way, your income needs to be more than 30 times the monthly rent. If the rent is £600pcm, your income needs to be greater than £18k.
Then again what if this "rule" applied to buying, that is what if the mortgage interest should be less than 40% of your gross annual income to pass on affordability?
Taking a typical example for round here:
Rent 675pcm. Minimum salary to "afford" the rent 675*30 = 20,250.
Let's assume mortgage interest rate of 6% and a 100% mortgage for simplicity.
To meet the affordability "rule" with the mortgage interest at 675pcm, puts the property "value" at 135,000. 135,000*6/100/12 = 675.
But what is the asking price? It's 200,000.
Now 200,000 at 6% would cost 1000pcm in interest payments. So to meet the affordability "rule" the buyer would need to earn a minimum of 30,000. Which means borrowing 6.66 times salary. No one would recommend such a high multiple would they :eek:
Not much room for rent increases in those calculations but plenty of room for house prices falls :rotfl: Unless the "rules" are forgotten when they're not convenient, bit like mortgage lending has done with the traditional salary multiples.0 -
rosysparkle wrote: »The rent should be less than 40% of your gross annual income to pass on affordability. Or to put it another way, your income needs to be more than 30 times the monthly rent. If the rent is £600pcm, your income needs to be greater than £18k.
Well here's an example of a proposed rent increase due to "increased costs and interest rate rises".:
http://forums.moneysavingexpert.com/showthread.html?t=500943
In post #1 the landlord is proposing a rent increase from £740pcm to £800pcm. That means the tenant's minimum required income would go from £22,200 to £24,000 per annum to maintain passing the affordability rule, an increase of 8.12%. Where can you get increases like that these days
And in post #7 the landlord wanted to increase the rent by £100 pcm meaning the tenant's minimum income would need an extra £3,000 per annum to meet the affordability criteria.
So either the affordability criteria is relaxed or rents don't increase to cover "increased costs and interest rate rises". It seems obvious landlords will quickly price themselves out of the market as the higher the minimum income needed the less tenants will be earning enough.0 -
Tell it to Letsure. All I did was supply the answer to the OP's question. I didn't set (or even necessarily agree) with the formula, I just happen to know what Letsure and other referencing agencies require for a pass on affordability.0
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i don't accept DSS (housing benefit)
What would happen if you your tenant were to lose their job and forced to claim HB ?
but my current tenant paid 6 months in advance to show they were serious about renting the property, so i accepted.
We get offered 6 months up front a lot, BUT it's mainly from prospective tenants whose credit don't check out ! we say NO THANKS . maybe carrot to the donkey.0 -
rosysparkle wrote: »Tell it to Letsure. All I did was supply the answer to the OP's question. I didn't set (or even necessarily agree) with the formula, I just happen to know what Letsure and other referencing agencies require for a pass on affordability.
Ah, I thought this may be linked to insurance, letsure do income protection products.
How much leeway do they allow in the tenant failing any of the referencing and still have the insurance work? I'd guess not much as they won't want the insured risk to be too high. I suspect the small print says the tenant has to pass the tenant referencing to be insured. I wonder if that includes an existing tenant passing the affordability test after any rent increase? If not the landlord could impose a large increase causing a claim to be made when the tenant defaults. Interesting... otherwise there would be scope for installing the landlord's friend as the tenant and making a claim for a nice high rent...0
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