How Much Rent Can I Afford To Pay & What Should I Consider?

How much rent can I afford to pay, and what should I consider?

Many people feel under a significant amount of society and peer pressure to own a home. But with skyrocketing property prices, hefty deposit requirements and an unstable jobs market in the wake of the coronavirus pandemic, buying a property is out of reach for lots of people. Unfortunately, the council housing registers across most local authorities are overwhelmed, with waiting lists lasting many years. Most people, therefore, have no choice but to rent privately, which is far from a cheap option.

In the UK, you must have the right to rent and evidence this to a letting agent or landlord. It’s the landlord’s responsibility to check this. Everyone aged 18 or over who is a British citizen or resident intends to live in the property as their main or only home is entitled to rent. The right to rent is checked through the Home Office, either manually or online.

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How to rent a home?

Privately renting a home is usually done through a letting agent or private landlord. Tenants (that is, those renting) pay rent monthly directly to the relevant party through a standing order or bank transfer. The most common contract between a landlord or agent and tenant is an assured shorthold tenancy, giving both parties legal rights and responsibilities toward one another and the property itself.

Private tenancies can be for any length of time, but the most common is six months or a year, and from thereon, landlords usually offer a rolling contract that allows the tenant to end the agreement with just a month’s notice any time. Before that, the notice period given by either party depends on the length of time stipulated in the initial contract. However, there is normally a get-out clause for emergencies or unforeseen circumstances, too.

Your questions, answered

To be accepted to rent a property, the landlord may carry out a credit check. However, ultimately, the landlord has the right to accept or reject a potential tenant as they wish (providing there’s no outright discrimination). Most rental properties require a deposit before the tenant moves in to cover the letting agent fees and is held as a ‘damage deposit’ to cover any potential damage that may require repair at the end of the tenancy.

A deposit for a rental property is capped at five weeks of the monthly rent, plus the first month’s rent upfront. The only time it will be higher is if the rent is £50,000 a year or more, but this is also legally capped to six weeks. For the tenant’s protection, the landlord must put the deposit amount into a government-approved deposit scheme. Doing so ensures the landlord can only retain the deposit or part of the deposit if they have the evidence and good reason for doing so, and the tenant agrees to it. As a result of these expensive amounts, it’s no surprise that one of the most common requests to The Money Shop is a loan to cover a rental deposit on a new home.

Working out exactly how much you can afford to pay in rent monthly can often be a complicated process. A credit provider or credit check facilitator working on behalf of a letting agent or landlord will usually decide what you can reasonably afford to pay. In these instances, there is sometimes a set amount of income required per band of rent. Therefore as rental prices increase, so, too, do the required salary levels. If you’d prefer to avoid a credit check and rather not have it on your credit history, first check with the agent or landlord to see if they can provide you with this salary scale. You may find that the salary scale rules you out and means you need to seek a rental home elsewhere. Alternatively, it could give you the peace of mind that processing your rental application won’t be done in vain.

There are no set-in-law guidelines for how much renters should pay per month in line with their income, but certainly, rental levels have risen in recent years. The government advises that for most people, you should spend no more than 35% of your monthly ‘take-home’ pay (the money you receive into your account after taxes and national insurance contributions) on rent. This figure will be lower if you have other considerable financial responsibilities, such as children.

You’ll find various salary-rent calculators online, but realistically, in signing up for any financial commitment, the decision you make should be reliant on your circumstances. An online calculator can give you a good idea of what should work out for you. Still, it’s no substitution for sitting down and working through your income, your outgoings and your upcoming commitments to understand your affordability levels best. In doing this, it’s best to take into consideration your finances over the last few months. Work out a comfortable amount that would allow you to maintain a lifestyle that you enjoy and ensure that it works with the property you’re moving into. Don’t be tempted to discount unexpected costs that have popped up; life dictates that these things will similarly happen when you’re renting, too, so you need to stay wary of them.

If a landlord feels your income may not be sufficient to cover the monthly rent they’d like for the property, or if they feel you’re at risk of defaulting on the rent, they may ask you to present a guarantor. This is especially common when considering tenants who are students, haven’t rented before, have CCJs (County Court Judgments) or defaults on their credit file, or are in receipt of benefits that covers some or the entire rental amount.

A guarantor signs a legal contract that requires them to pay the rent in the event that the tenant does not. This may happen alongside or in place of the landlord chasing the tenant for the money. Most of the time, a guarantor is a friend or family member of the tenant who agrees to sign the contract in good faith but if Social Services or another local authority body have a duty of care over the individual, they, too, may act as a guarantor.

Anyone may act as a guarantor provided they are aged 18 or over, have a regular income that would cover the rental amount, have a good credit rating and live in the UK. Homeowners are more likely to be accepted than those who also rent. Guarantors must be extremely careful about the guarantee agreement they sign up for as it could leave them with unexpected expenses. They could be liable for damage caused by tenants of the property they do not know about, fees charged due to the tenancy being extended beyond the initial term and/or costs due to tenancy variations they were unaware of.

If you’re unsure of the affordability of a rental property but cannot find a suitable guarantor, approach your potential landlord or letting negotiation agent. You may have to pay a larger initial deposit to alleviate their concerns and give them peace of mind without the need to assign a third party to a legal agreement. If you’re still struggling, or find that a guarantor is required, contact your Local Authority or a housing charity, such as Shelter.

When looking for a rental home, there are many factors to consider on its suitability for your living situation. Think about the following:

  • Deposit requirements: How much is it, and can you afford it? If you don’t have the cash to pay upfront but need to find it quickly, get in touch with The Money Shop team to discuss loan options.
  • Deposit amount: Since 2018, there has been a legal cap on the amount landlords can charge for the initial deposit. This must amount to no more than five weeks’ rent where the annual rent is less than £50,000, or 6 weeks’ rent where the annual rent is more than £50,000.
  • Deposit protection: If you pay a deposit, ask for details of the deposit protection scheme your deposit is paid into. Check the scheme’s details with your local authority if you’re unsure of its credentials.
  • Property size: Is the property of a size that’s suitable for you, your family and your financial circumstances? There’s little point in forking out for a 4-bedroom house if you live alone, and it would be unfeasible to live in a one-bedroom flat if there’s six of you and a dog. Consider your requirements carefully.
  • Property location: Finding your perfect property is great but means little if it’s hours away from your work, your support network or your other obligations. A property’s location can also help you evaluate whether or not the rent charged is fair, as you can compare it online to other similar homes in the area.
  • Tenancy length: Does the tenancy length suit you and give you the security you’re looking for? Is the landlord looking to sell any time soon, or are they happy to extend it? Legally, a landlord must allow you to sign a minimum tenancy term of six months, but if you need something shorter term, this may be available, too.
  • Bill payments: Some monthly rents include bills, but most don’t. Ensure you are exactly clear on who is responsible for bill payments before you sign anything. In shared homes, ensure agreements of split bills and/or differing responsibilities supplied in writing.
  • Fixtures and fittings: When browsing the property, be sure to raise anything that you’re concerned about with the landlord/letting agent before anything is signed. Without agreeing to change/fix/update the fixtures and fittings before moving in, you agree to move into the home as-is.
  • Safety alarms: Landlords have a legal obligation to have at least one working smoke alarm installed on every floor of every rented property. If the home has solid fuel appliances, your landlord must install carbon monoxide detectors too. Ensure you know where these are and, if applicable, when your landlord last had them serviced.
  • Landlord information: Even if you intend to rent through a letting or management agency, you have the right to know who your actual landlord is; that is, the owner of the property you’ll be renting. No rent is lawfully due until you have your landlord’s name and current address supplied in writing. You should find this in the tenancy agreement contract, signed on the first day of the tenancy. Your landlord should be the homeowner. If they claim to be a tenant, be sure to double-check they’re not illegally sub-letting; if the homeowner uncovers this, it could leave you with no rights, no returned deposit and no home.

The best decision you can make in borrowing money and deciding on the right rental property for you is an informed one. Just keep in mind that lots of the material online relating to renting a home is created by letting agents, so often framed to favour a certain agency or property. It’s imperative, therefore, that potential tenants remain open-minded and take everything they read with caution, weighing up its bias as appropriate. For the latest advice and legal requirements, check the UK government website for information.

If you’re looking to fund a deposit but don’t have the spare cash available right away, get in touch with The Money Shop team. We offer a variety of short-term loans with flexible repayment schedules that could help cover the cost of a deposit and remain affordable for you to pay back as you settle into your new home.