Across the country, rents are rising at an exceptional rate. According to a survey conducted by Reeds Rains and Your Move, monthly lettings payments are rising at an average of 6.3% year on year, far faster than wages or inflation – in London, rents rose by a massive 11.6% annually. Much like the rise in house prices, rents are becoming increasingly unaffordable to regular working people.
For any person that's either starting out on their own, or wants to change to a different rental property, such rises - and the housing crisis that's responsible for them - can be a huge source of stress. However, by simply looking at income and outgoing costs, anyone can get a good idea of what they can and cannot afford when it comes to rent, eliminating headaches in the process.
Quantify your monthly income
If you find yourself in the rental market and you want to avoid stress, the first step to finding out how much you can afford to spend on rent is to draw up a budget. Tot up every single outgoing you have to pay each month – bills, food, loans, council tax, petrol, savings, and pretty much everything else you spend money on – and subtract this amount from the sum of money you receive every month.
During this step, overestimating is a far better thing to do than underestimating, as you don't want to get caught out with less money than you actually have to spend. If you're using a letting agent when considering your move, be extra careful and factor in any potential administration fees, rent deposits, and the first month's rent – these fees have the potential to really cut into your budget.
You should now have a number that represents all of the cash you can spend on rent and any other unplanned payments, and a basis you can use to work out how much rent you can feasibly, and safely, pay.
Draw up a budget online with these money management services.
How much is too much though?
According to tenants' advice website Tenants Tips, a general rule of thumb is to aim to spend around 25% - or failing that, a third – of monthly income on rental payments and utilities. Use this method to double-check how much cash you've got to spend on rent – multiply your monthly income by 0.25 (or 0.33), and you should have a strong idea of just how much you're able to play with. If you have debts, bear in mind that a lower percentage will allow you to pay off your liabilities quicker.
In terms of income, lettings agents regularly recommend that tenants should have a yearly gross income that covers the property's annual rent by a factor of two and a half, before taxes. Guarantor incomes are also taken into account, although this differs according to the particular letting agent.
If you're finding that your chosen property is going to be far too expensive, and that you're going to need help with deposits or rents, then don't take any chances: pick somewhere cheaper. There's no point in having a flashy pad if you end up in arrears, debt, or have to find a new place due to an inability to pay.