How Much Rent Can I Afford to Pay?
- 7th August 2018
Written by Samantha Moate
Written by Samantha Moate
There are many benefits to renting a property. As well as increased independence and the enjoyment of living in an area that suits you without having to commit to buying, more and more of us are turning to renting every year as a way of testing the property waters and enjoying the flexibility of fast-paced jobs and lifestyles. But how much rent can you afford? If you’re stepping into the rental market or are thinking of finding a new place to live, then it’s a good idea to get your finances in some kind of order. Here we break down exactly what you need to consider before you put that deposit down.
The first step to calculating how much rent you can afford is to measure it against your income. When it comes to renting, it’s important to strike the right balance between affording your bills but also living in a property that suits you and your needs. This is something called ‘living to your means’. Rent a property that is too expensive for your salary and you’ll quickly run into debt problems, but in contrast if your income is on the rise you can start to look for somewhere nicer that will suit your lifestyle.
But always remember that rent is more than just a fixed amount. You’ll also have to factor in various bills and general living costs, and depending on how many people you’re choosing to live with will also significantly alter the amount of additional outgoings.
It is commonly agreed upon that you should spend up to 30% of your annual income on rent. Why 30%? This seems to be the percentage that allows you live comfortably and provides you with enough extra income for any living expenses and savings should you wish. The easiest way to calculate this? Take your salary (after income tax) and divide it by 40.
Say your take-home salary is £20,000. Divide this by 40 and you should be able to afford to spend approximately £500 on rent. Once again, this amount will differ if you’re splitting bills between you and a partner, friends or other flatmates. Take your combined income and you should be able to see the sort of property you can afford.
As a general rule, those who live in cities tend to spend a higher percentage of their income on rent because the living costs are notoriously high – particularly in London. But keep in mind the general rule of 30% and factor in where it is you’ll be living before you settle on a rent figure.
Got your base rent worked out? Now it’s time to grab a calculator and tot up the other following expenses.
After the rent itself, council tax will be your largest outgoing. UK properties are categorised into bands and charged accordingly based on their value, so the cost of your council tax can vary considerably depending on where you live. Those that fall into the lowest property band are charged nearly £1000 a year and the highest band reach just over £3,500. Quite a hefty sum, especially if you’re planning on living alone!
Before you sign for a property, it might be worth doing a little digging and seeing what the council tax bands are for that particular building. Even within apartment buildings themselves, the amount of council tax can vary by hundreds of pounds between each flat based on their value. If you’ve checked out a few potential properties and you’re torn between which to go for, the option to save a few hundred pounds a year on the council tax bill might just help you decide!
The next priority on your list should be electricity, gas and water. These bills are usually paid monthly or quarterly, and are regular outgoings that will start to add up. Similarly if you’ve got a TV and need a TV license, you can decide whether to pay this in a lump sum or split it monthly. Any landline or broadband bills will also need to be factored in so that you can enjoy WiFi and phone calls in your new home.
As soon as you’ve got your rent calculated and all your regular bills worked out, it’s time for the fun stuff! Think about the regular expenses that you enjoy. Do you own a smartphone, for instance? Do you love your Spotify Premium account? Do you hit up the gym a few times a week? Our lifestyles are now such that we each have various leisure and entertainment outgoings that all add up. Factor in your gym membership, phone contract and music service subscription to give yourself a clearer idea of how much you spend each month on the things you love. You won’t want to give these up, so it’s important to know how much they take out of your budget.
You’ve worked out all the monthly costs, and so finally you can consider any other day-to-day expenses. If you love eating out or going for drinks after work on a Friday, then perhaps add a little more than you need for your food allowance. If you’ve got children you’ll need to consider any childcare costs, and if you’re a university graduate you might be earning enough that you have to start your loan repayments.
Before you’ve even started to move into your new home, you’ll have to face and prepare for any upfront costs. Usually these include agency fees and a deposit that you should get back at the end of your tenancy, provided that you’ve left the property in the same condition. Can you afford a deposit off the cuff? It’s usually between 4-6 weeks’ worth of rent, and whilst you should get your deposit back when you move out, there’s always a chance that you won’t get the full amount back if you cause any damage to your building. Likewise, if you’re using an agency to sort out logistics like credit checks and references then they’ll likely charge you an agency fee.