We have a property in London with monthly rent of £2.8k. The family living there moved out and now the agent has told us they are unable to find a family to rent this. We have instead got 3 young professionals earning a joint annual salary of £90k. The agent is trying to convince us that this is more than 30 times the annual rental which is sufficient. I am concerned that:
1- what happens if one of them decides to move out; and
2- whether this rule (annual salary should cover 30 times the monthly rent) should be applied after tax. It does seem that rent would be taking up a disproportionate (2/3?) amount of their post-tax earning.
As a newbie to this type of multiple tenancy I was wondering what advice other landlords on here would have please? Thanks
Personally, if I was to go down the HMO route I would want to achieve a slightly higher rent as this type of let requires more involvement. Higher turnover etc. You will have to way it up against potentially longer void periods whether it is worth it.
The affordability calculation is done on gross income. I do share similar concerns to you with the current cost of living crisis, I often wonder if 30 X gross income is really enough.
3 young professionals is a bit of a stretch in that they’re each earning less than the average salary (£37K) in London. You’ve also noted affordability is being stretched and if one drops out, it’s unsustainable for the others.
Agents advise. You decide. So stick to your own calculations.
Do check whether your London borough has an additional licensing scheme, in which three unrelated tenants (or 2+1) will require an HMO license and a lot of costly adaptations.
Thanks all for your responses. My instinct is to lower the rent if needed to get some (hopefully) hassle free tenants and buy some peace of mind. Either that or just sell the property, although prices are not encouraging at the moment!
You are mixing monthly rent and yearly salary .
Yearly rent is £ 33 600 and yearly salary is £ 90 000 , which isn’t even three times the salary, let alone 30 times
Re “The affordability calculation used by most referencing agencies is a gross salary of 30 times the monthly rent.”
I have never looked at it this way but I am shocked.
My tenants pay £500/month each. 30 X £500 = £15,000/Yr.
Let me tell you that it is impossible to live in my area with an income below £22K/Yr.
In my opinion, if the 3 professionals are willing to enter into a contract (tenancy) as one unit then they could be held jointly and severally liable for the rent for the duration. The point about one dropping out - you will need special clauses I suppose to deal with this. Three professionals no different to a family of three. I would try to structure it in a way that if one drops out they settle the bill there and then and enter into a new contract either with a newbie or the remaining two?
With 3 unrelated sharers the property would be a HMO with all tenants having their own contract. If one moves out you still have the income of the other two. This is the proven business model for properties with multiple unrelated occupants. Having the individual tenants all together on a joint tenancy is likely to become problematic although i agree that when faced with a lengthy void period we are have to explore unconventional methods.
The situation of 3 unrelated tenants is no different to an unmarried couple. The couple’s “relationship status” is immaterial. One could leave but still would be jointly and severally responsible for the tenancy they signed.
It possibly could work but it is unconventional to have 3 unrelated sharers on a joint tenancy. There would have to be a discussion about the council tax and other bills.
Possibly it could be done with one of them acting as the lead tenant solely responsible for the rent and bills and the other two pay the lead tenant. You probably wouldn’t want to put 3 different names on the council tax and utility bills to highlight it as a HMO🤔
That’s all very well but if it’s not feasible for the others to cover - as they are unable to afford it - then it really doesn’t matter what the agreement says.
I think it’s very different than having a family where there is one income that satisfies the criteria. All it would take would be for one of them to move out and in with a partner for the property not to be affordable for those remaining.
I would just like to add that a HMO LL on a different forum while discussing a different topic has said it is usual for her house mates to open a joint bank account for the paying of bills. Just thought it was interesting.
The first paragraph, last sentence has annual rather than monthly - that’s what has confused a few including me. But the bullet point for it is correct. No problem just a typo but just clearing this up.
Here it is explained by Rightmove:
" The calculation is normally that your monthly gross salary needs to be at least 2.5 times the monthly rent or thinking about it another way, your gross annual salary would need to be at 30 times the monthly rent . If there are going to be multiple people named on the tenancy, the calculation would apply as a group."
Yeah renting like this may require 'all fire proof doors on bedrooms etc" and all that carry on for HMO. Check with local council what’s required. Having said that HMOs tend to bring in the highest yield yet the highest hassle if not done flawlessly.