I have found a great couple to rent my property. Although the wife’s basic salary doesn’t cover half the rent, she has shown me payslips that prove that for the past six months she has had overtime that more than makes up for the discrepancy. Will referencing take this into account?
Referencing is a vital part of preparing your tenancy, and it is understandable that you want your tenants to pass – after all, if they don’t you may find that your insurances don’t hold water if your tenants haven’t passed a referencing check. However, it can be frustrating when you are aware that the household income more than covers the rent, but the referencing just doesn’t cut the mustard.
The household income of the property, either via a single tenant or the combination of incomes from all of the tenants, must be 30 times the monthly rent. For example, if your property is £1,000 a month, the household income of the property must be at least £30,000. This can be one tenant with earnings of £30,000, two tenants earning £15,000 or three tenants earning £10,000 – as long as the total amount is £30,000, referencing should pass! If, between them, your tenant's joint incomes without overtime make up the correct figure you shouldn't have any concerns, however if one tenant is still reliant on additional forms of income you may find that the referencing agency recommends a guarantor.
If your tenants need a guarantor, the guarantor must earn at least 36 times the monthly rent, so for a £1000 monthly rent they would need to earn £36,000 a year.
Whilst generally handled by the referencing company, it can be useful to understand the acceptable forms of income so you can help your tenants prepare their application in advance:
Acceptable forms of income:
- Proof of annual salary, or hourly rate based on minimum contracted hours via payslips
- Working or Child Tax Credits will be taken into account as additional income, but not as a sole income.
- Universal credit applicant’s will need to provide the last 6 months’ proof of income, which must include the applicant’s name. If screenshots are provided, you will also need to provide a document confirming the applicant’s entitlement to Universal Credit, which will likely be a letter.
- Child maintenance, if court or CSA/CMS ordered. Evidence will be required.
- Disability payments in the applicant’s name can be taken as additional income but not as sole income. Disability payments will not be considered for guarantors.
- Foster carer’s income where there are up to three children in care at any time. 100% of the income will be taken into account.
- State pensions, if the annual increase letter or 6 months’ bank statements are provided.
- Private pensions, if the latest P60 or a letter confirming income is provided. The last 6 months’ payslips or the last 6 months’ bank statements can be accepted instead, if the pension payment is clear.
- Self-employed income, which must be confirmed by a chartered accountant or an SA302 or online tax calculation page.
- Income from rental properties can be accepted if confirmed in the same way as self-employed income.
Unacceptable forms of income:
- Child benefit.
- Tax vouchers
- Year-to-date or projected income figures.
- The childcare element of tax credits
- Foster carers’ income (where there are four or more children in care at any time).
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