"Do I need a guarantor?"
One of the most frequently asked questions from potential tenants is “will I need a guarantor?” and it can be hard for me to answer immediately. So, if you are a tenant and you are unsure whether or not you require a guarantor, here are a few pointers for you.
Affordability Referencing
One thing that potential tenants are not aware of when looking for a property is that although realistically they may be able to afford a property and budget for the rental amount, the affordability reference carried out by referencing companies and agencies usually work on a calculation.
For example, Rent4Sure an independent referencing agency that we use, reference the “guaranteed income” which includes the gross annual salary and excludes things such as overtime or benefits received by the tenant. Therefore, you may be working with a salary and receiving additional non-guaranteed income from extra hours which will not be considered when going through referencing.
The calculation Rent4Sure use is: (Rental figure x 12) x 2.5 = affordability
For example, if the monthly rent of a property is £700 PCM, the calculation would be as follows:
£700 x 12 = £8,400
£8,400 x 2.5 = £21,000
£21,000 is the minimum gross annual salary required by the applicant(s) to pass affordability referencing on a property priced £700 PCM
My advice to any renters out there who are looking for a property would be to do the calculation backwards to check whether you would pass the affordability referencing on the price you are looking at. For quick reference it is:
(your gross annual salary ÷ 2.5) ÷ 12 = affordable rent
E.g. £18,000 ÷ 2.5 = £7,200
£7,200 ÷ 12 = £600 PCM
Of course, not everyone is salaried, and some people may have a 0-hour contract, work part time or be in receipt of housing benefit. If this is the case or if you fall short of the affordability calculation, then the Landlord may ask that you have a guarantor.
Guarantor Referencing Process
All guarantors need to be referenced, so to help you find a suitable guarantor you can use this affordability calculation as below, which is used by Rent4Sure:
(Using an example rental amount of £700 PCM)
£700 x 12 = £8,400
£8,400 x 3 = £25,200
Therefore, in this example £25,200 is the minimum gross annual salary the guarantor would be required to earn to pass.
Credit Checks
Another part of the referencing process is a credit check. If you fail a credit check then the Landlord may ask that you have a guarantor. To ensure there are no surprises when going through the referencing process I would advise tenants to carry out a free online credit check and if it is low, make the agency aware before the referencing process begins. We always appreciate when tenants are honest with their applications before referencing commences.
Please note however that different agencies have different referencing processes and it is best to ask any questions you may have before you view the property to ensure you are not wasting any of your time or the agent’s time.
If you do have any queries regarding guarantors or any other residential sales and lettings topics, please do not hesitate to get in touch with me on 01323 739183 or you can email us!
