Surge in demand for guarantors under Renters’ Rights Act

The introduction of the Renters’ Rights Act is set to significantly increase the demand for guarantors among tenants, according to recent research by Zero Deposit. With new restrictions on upfront rent payments, landlords are expected to tighten affordability checks, potentially leaving more tenants needing financial backing to secure a tenancy.

Rising need for guarantors amid affordability challenges

Zero Deposit’s research highlights that more than half of tenants may require a guarantor following the implementation of the Renters’ Rights Act. The legislation prohibits landlords and agents from accepting large sums of rent in advance, a practice that previously offered landlords a degree of financial security.

Currently, average rents across England stand at £1,438 per month, or £17,256 annually. To meet typical affordability criteria, tenants would need to earn at least £43,140 a year. However, average earnings in England are £41,859, leaving the average renter £1,281 short of the required income threshold.

This gap means tenants in nearly 20% of local authority districts already fail affordability checks based on average earnings. With the new act limiting upfront rent payments, landlords are expected to place greater emphasis on income verification and may increasingly require guarantors to mitigate financial risk.

Impact on tenants and landlord risk management

Sam Reynolds, CEO of Zero Deposit, explains that while the Renters’ Rights Act aims to enhance tenant security, it also alters how landlords manage financial risk. “With restrictions on upfront rent payments and fewer traditional safeguards available, landlords and agents naturally place greater emphasis on affordability checks and income protection when assessing prospective tenants,” he said.

Reynolds anticipates that guarantors will become more common, especially for groups such as younger renters, overseas applicants, the self-employed, and those seeking accommodation in high-cost areas. These tenants often fall outside standard affordability criteria and may struggle to meet the stricter financial requirements.

Regional disparities and guarantor availability

The research reveals regional variations in affordability challenges. London contains 22 local authority districts where average incomes do not meet affordability thresholds, while the South East has 21 such areas. This indicates that tenants in these regions are more likely to require guarantors.

However, Zero Deposit warns that many tenants may not have access to a suitable guarantor. Reynolds notes, “The challenge is that the traditional guarantor model is no longer practical for many renters. Not every tenant has access to a suitable guarantor, and even when one is available, the referencing and verification process can introduce delays at a point where rental properties move extremely quickly.”

Potential shifts in affordability criteria

Previously, many tenants paid more than one month’s rent in advance, with the English Housing Survey indicating 21.5% of private renters did so. With this option now restricted, landlords are expected to seek alternative financial protections.

Zero Deposit suggests landlords might raise the affordability threshold from 2.5 times income to three times income to reduce risk. Should this become standard practice, the proportion of local authority districts where tenants fail affordability checks could rise sharply from 19.8% to 47.6%. This would mean average earnings in 137 local areas would fall below the required level, further increasing the need for guarantors.

What this means for landlords

Landlords will need to adapt to the changing financial landscape brought about by the Renters’ Rights Act. With upfront rent payments curtailed, reliance on affordability checks and guarantors will become more pronounced. This shift requires landlords and agents to refine their tenant vetting processes and prepare for potential delays caused by guarantor referencing.

Additionally, landlords should be aware of the regional disparities in tenant affordability and consider how raising income thresholds might affect their tenant pool. Balancing the need for financial security with the goal of maintaining access to a broad range of tenants will be a key challenge moving forward.

Source: Based on reporting from Property118

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