Tenants find it hard to pass Letting Agent checks

It probably doesn’t come as a huge surprise to learn that more and more tenants are struggling to pass the credit checks required by letting agents before they are able to rent a property.

It is good practice for letting agents, landlords and credit reference agencies to ensure that prospective tenants are able to pay the rent before being granted the keys to a property. The more professional letting agents and tenant referencing agencies will want to see proof that a prospective tenant can afford the rent (they will ask for employment/accountant references) and has a history of paying bills on time. According to recent industry news however, fewer tenants are able to meet the conditions required of them.

Is renting becoming as difficult to achieve as buying?

In some areas it would appear that it is. Most people are aware that calculations are used by the mortgage industry to determine whether a potential buyer can afford to purchase a property. Similar calculations are used in the rental market too, and nowadays it would seem more people are struggling to demonstrate to their landlords that they can afford their rent.

Potential tenants wanting to rent a property must have a gross income of at least two and a half times the amount of rent payable (it can be up to three times the rent payable, depending on an individual’s circumstances). For a property with a monthly rent of £800, a potential tenant with a good credit history would need to prove gross annual income of at least £24,000.

Rising rents and static wages are causing problems for tenants wanting to rent properties

Just as rising house prices in recent years have led to fewer people being able to afford to buy their own home, so rising rental costs are leading to the same situation in some parts of the rental market. Landlords in specific parts of London are finding it challenging to locate suitable tenants who are able to pay their rent.

The rental market is very competitive and this is good news for landlords wanting to reap the best possible rewards from the properties in their portfolio. It’s also good news for tenants albeit in a less obvious way, in that it drives the standard of the housing stock upwards. And it makes perfect sense that letting agents and landlords would want quality tenants who can afford to pay their rent over someone who may present a higher risk of defaulting on the rent.

June 2011 has seen the highest average rents so far in London, rising to an average of £1,006 per month. This is up by 6.9% on last year – a huge rise that has not been matched by an increase in tenants’ salaries.

And whilst London is always the benchmark for price increases, there is no doubt that other parts of the country are seeing similar rent rises and subsequent difficulties for tenants who can’t demonstrate good credit history and affordability.

Rent increases have slowed in recent months but it’s not until salaries rise that potential tenants will have an easier job persuading landlords and letting agents they can afford their rent.