Rent and Credit > How to work out how much rent you can afford

How to work out how much rent you can afford

Wollit Team2 minute read · Updated 28th July 2024

To work out how much rent you can afford, you need to look at a few factors, including your income, expenses, and financial goals. This is also called “rent affordability” – basically the amount of rent that you can comfortably pay without compromising your financial stability.

Here are some common rules of thumb for calculating rent affordability.

The 30% rule

This is probably the most commonly referenced rule, and it suggests that you should spend no more than 30% of your gross monthly income on rent.

For example, if your monthly income is £3,000, your maximum rent should be around £900.

While it’s easy to calculate and widely accepted by landlords, it doesn’t really account for things like debt, family size, or living expenses, which can vary quite a bit.

The 40x rent rule

Some landlords apply the 40x rent rule, which states that your annual income should be at least 40 times your monthly rent. For instance, if you want to rent a property for £1,000 per month, your annual income should be at least £40,000.

It has similar pros and cons to the 30% rule – it just doesn’t account for your individual situation.

The 50/30/20 rule

Another rule is the 50/30/20 rule, which divides your income into three categories:

50% for needs: rent, utilities, groceries.
30% for wants: entertainment, going out, that extra Disney+ subscription.
20% for savings, retirement, and debt repayment.

Using this method, if you earn £3,000 per month, you would put aside £1,500 for needs, which includes rent. This gives you a bit more flexibility than the 30% rule.

How do I calculate how much rent I can afford?

Using the rules above to calculate how much rent you can afford is straightforward:

Work out your gross income: this is your total income before taxes and deductions.
Decide on a percentage of your income to allocate to rent based on the rules above.
Multiply your gross monthly income by your chosen percentage. For example, if your gross income is £2,500 and you choose 30%, your maximum rent would be £750.
List your monthly expenses (utilities, groceries, transportation) to see how much you can realistically allocate to rent after covering these costs.

For example, if your gross monthly income is £3,500:

Using the 30% rule: £3,500 x 0.30 = £1,050 can go to rent.
Using the 50/30/20 rule: £3,500 x 0.50 = £1,750 is the total for “needs”, including rent.

What to do if I can’t afford rent?

If you find that the rent in your favourite area goes over your budget, consider these options:

Roommates: sharing a rental with roommates can significantly reduce your individual rent burden.
Downsize: look for smaller or less expensive properties that still meet your needs.
Seek assistance: there might be government programs or non-profits which can help you.
Negotiate: don’t hesitate to discuss rent with landlords. They may be willing to lower the rent if your situation is dire – or if you have a very good track record of paying rent on time.

This is why it’s important to add your rent payments to your credit report using a credit-building app like Wollit. Many landlords and most letting agencies run a credit check to decide whether they should rent to you or not. Even if they don’t, you can still be proactive and show your record of rent payments, proving that you’re a reliable person who pays their bills on time.

With a bit of luck, this might sway them to offer you a deal.