Let’s be honest, Oxford is an expensive place to rent. In fact, beyond the very high cost parts of
London it has the largest gap between average income and house prices in the
UK. With this in mind the Chancellors
recent announcement on tenant fees would surely be welcomed as good news right?
Maybe not when the implications are truly considered.
To pass a credit reference check, a tenant must be able to
prove that they can afford the rent which is determined based on their annual
income. Typically, this is calculated by a tenant’s annual income being 30
times the monthly rent i.e. for a rent of £1,000 per calendar month, the
tenants’ will need to prove that their combined income is at least £30,000 per
annum.
Whilst the actual multiple required might vary between
landlords, the basic principle above is the ‘acid test’ for affordability. If, the tenants are below the required level
of income, some landlords will allow them to pay a proportion of the annual
rent in advance to ensure that subsequent monthly payments fall within the
affordability threshold.
At Martin & Co Oxford, an average property has a rent of
£1,196 per calendar month. Using the
measure above that requires the tenants to have a joint income of £35,880 per
annum. At the time of writing the
average income in Oxford is around £26,500 meaning that most couples require
two incomes to rent an average Oxford home making it difficult for them to
afford.
For tenants, is it preferable to pay a fee of £300 at the
start of their tenancy or for the rent to rise by 5% per annum? Already rents in Oxford rise on average by 3%
per annum according to trend data from the last 5 years. So, in 2017 the average rent of £1,196 per
calendar month mentioned above can be expected to rise by £36 per month. Should rents rise by a further 2%, as many
predict will happen as a result of the ban on tenant fees, that increases to £60
per month or £720 in total i.e. £288 per annum above trend. So, at face value, tenants will be slightly
better-off – they save £300 in tenant fees, and pay £288 more in rent, meaning
they are £12 to the good. But is that preferable? To qualify as being able to afford a property
at the new higher rent those same tenants will need to earn an additional
£1,800 per annum - an increase of 5% yet incomes in Oxford are rising at nearer
2% per annum. So, anything that results
in the affordability gap widening further risks tenants failing to qualify for
new tenancies, or having to find much larger lump sums in advanced rental
payments to make-up any income shortfall.
The current model where a tenant pays £300 at the start of
their tenancy is preferable for many as it is a sum which they can afford, and
it falls outside of the assessment of their ability to afford the rent during
the term of the tenancy. In the example
above where income increases by 2% and rent increases by 5%, they will fall
short by £1,082 per annum. In this
situation they will either be deemed unable to afford the property, or be
required to pay the shortfall up-front, or be required to find someone prepared
to stand as a guarantor. When considered
in this way, for many tenants a known and defined up-front fee is always preferable.
Our concern as one of the main agents in Oxford is the
affect that the ban will have on both tenants and landlords. We want landlords
to continue to be able to invest in property providing homes for people when
Oxford is most in need, and we want tenants to be able to be successful in
applying for properties that they want to make their home.
No comments:
Post a Comment