With pressure on household budgets seemingly increasing week on week, figuring how much rent you can afford is a critical – if sometimes uncomfortable – exercise. Lettings agencies will conduct their own referencing which will undoubtedly include an affordability calculation, so it's best to have done the same yourself in advance of your property search.
A general rule of thumb is that your salary should be at least 2.5 times the rental figure. Referencing agencies will all use their own calculations, if in doubt ask your letting agent what their minimum expectations are. But rent is just the start of your affordability journey, so you should be sure that in the real world you can afford the following outgoings which almost all tenants will have to cover:
Utilities (Gas, Electricity and Water) - Clearly the cost of these essential services will vary depending on the size of your property and household. The cost of gas and electricity has featured in the news extensively of late, and for good reason. OFGEM (the energy regulator for Great Britain) has just announced a rise in the price-cap, and another is due in October 2022. It also wishes to review the cap more regularly - every three months instead of every six - ostensibly to allow it to become more agile and take advantage of decreases in wholesale energy prices. However, in the short term the only movement is extremely likely to be upwards. So try to plan for what you can afford for the duration of the tenancy, not just right now.
Council Tax - Councils were given the green-light last year to raise council tax by up to 5% from April 2022 – which many did. Properties are divided into valuation bands (A to H, A being the cheapest). To find out which band your prospective property falls into, go to the council tax valuation list. You'll be able to find out from your local council's website how much the charge is for each band. Don't forget, there's a £150 rebate for properties in bands A to D for 2022/23. You'll receive this automatically if you pay by Direct Debit; if you don't, you'll have to wait for your council to invite you to claim it. A good reason to switch to DD.
TV License - Currently £159. This is non-negotiable if you have a TV, tablet, computer, mobile phone, or any other device that can receive a TV signal. You don't need it to watch non-BBC programs on catch-up services, videos or DVDs, clips on websites like YouTube, or CCTV.
Existing Personal Debt - Clearly this will vary depending on your prior spending and financial history. Remember to include all of the following: personal loans, student loans, credit cards, car finance, overdrafts, buy now pay later agreements.
Living Expenses - Again a category that will vary greatly from person to person. In general terms, you'll need to think about food and drink, travel, entertainment, clothing, toiletries and personal items. This category is a bit less cut and dried as the others, so the key here is to be ruthlessly honest with yourself.
There's a general rule of thumb that you should aim to spend no more than 30% of your take-home salary on rent, exclusive of the additional expenses above. However this will be governed by where you live; in a large urban area you may have little choice but to spend a higher proportion on pure rent.
To break things down:
Do your sums in advance so you don't waste time looking for a property that you'll come unstuck on at the referencing stage
The rental figure isn't where the story ends; there are many other expenses to take into account
Be honest with yourself about your spending
Bear in mind you may not be comfortable being left with absolutely nothing at the end of the month; you may have savings goals or wish to take a holiday
Quick wins when looking to save money:
Consider properties either side of your preferred search area. In major conurbations prices can vary even from street to street. Comparatively speaking, the suburbs are where you'll find lower rents.
Be flexible on property type. Sacrifice some kerb-appeal and your options will open up.
Be greener. Switch off lights, use less water, don't over-heat the house, dry clothes outdoors, use energy saving bulbs.
Eat what you buy. We're shockingly bad at throwing away food, shop smart!
For advice on anything to do with renting a property, speak to your local letting agent. They're there to help.
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