Understanding Rent: How Much Rent Can I Afford to Pay?

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Sometimes renting a home makes more sense than purchasing a home. If your job entails transfers or seems unstable, you would be better off to rent first. It’s also a good way to get to know the area you’re interested in living long term without committing a large sum of money for a purchase.

In order to figure out how much you can afford to pay in rent, there are a few things you should consider first:

When considering you as a potential tenant, a landlord will look at your income to determine if your gross income would cover the annual rent by a ratio of 2.5 times your annual salary before taxes. So for example, in order to be considered by the letting agent, if your rent was going to be £6000 per year (or £500 per month), you would be required to make a gross annual salary of £15000 before taxes.

To work out what your own budget will allow for rent, you’ll need to do some simple math. You need to work out absolutely everything you spend your money on, including how much you plan on spending on holidays or have put away for emergencies. Then figure out what your take home pay is (salary less taxes) which will be your net income.

Now write down all of your monthly expenses including car loans, credit cards, petrol, holidays, groceries, utilities, food, clothing and anything else that you spend regularly. This would be considered your long term debt.

Now subtract your long term debt from your net income and what’s left is what you can afford to pay for your monthly rent. This total for rent should include your contents insurance.

An easy way to think about what you should be capable of spending is to take 25 – 30% of your net income and this is what you should be paying for rent. So for example, let’s say you make £20000 per year you might be looking at a rent payment of about £5000 – £6000 per year (or £416 – £500 per month).

No matter what the numbers say on paper, you should only pay what you feel comfortable paying. After all it’s your money and only you know how much money you have left at the end of each month.

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