How to calculate affordability for a tenancy application
As part of the referencing process for a tenancy application, companies such as Tenant Screening will look to identify and evidence the income that the applicant is earning. This verified income is then used to calculate the affordability of the tenancy in question.
There is an industry standard affordability calculation that is used by most letting agents and referencing providers. These are:
- Bills Included – x25 the monthly rental amount as a gross annual salary.
- Bills not included – x30 the monthly rental amount as a gross annual salary.
- Guarantor Referencing – x36 the monthly rental amount as a gross annual salary.
If an applicant falls under 100% affordability but is over 90%, a guarantor could be recommended if all other factors in the application are met. However, for any applications at under 90% and/or under 100% but above 90% that have failed in any other of the referencing checks, a failed recommendation is provided.
If a guarantor does not meet at least 100% of the affordability a failed recommendation is provided with no exceptions.
Examples of the calculations as follows:
Example 1 (Bills included)
- Monthly Rental Amount – £700
- Minimum Affordability Required – £17,500 (£700×25)
- Tenant Income – £20,000 gross confirmed
- Result – Pass if all other factors of the referencing have also passed.
Example 2 (Bills not included)
- Monthly Rental Amount – £1000
- Minimum Affordability Required – £30,000 (£1000×30)
- Tenant Income – £28,000 gross confirmed
- Result – Guarantor required if all other factors of the referencing have also passed.
Example 3 (Bills not included)
- Monthly Rental Amount – £1200
- Minimum Affordability Required – £36,000 (£1200×30)
- Tenant Income – £31,000 gross confirmed
- Result – Fail, due to achieving 86% affordability and under the 90% where a guarantor would traditionally be recommended.
If you haven’t yet signed up to Tenant Screening, we will complete this calculation and evidence income as standard in our full tenant profile.
To create an account at tenant screening please visit www.tenantscreening.co.uk and select register. To speak with one of our team please call 01793 847014 or email [email protected]
