Tenants Spending 50% of Income on Rent
Back in May, before the interest rate went up to 5%, data from SpareRoom revealed that more than a third of renters in the UK have spent at least half their salary on rent. Across 11,000 private renters surveyed, 81% spent more than 30% of their income on their rent, which causes an issue when it comes to buying essentials.
Almost two months on, with mortgage rates suffering severely, tenants could be spending even more of their income on rent as landlords look to increase rents to compensate. Less disposable income leads to less spending power in a cost of living crisis. According to the survey, 54% of tenants described their rent as unaffordable.
SpareRoom has called on the government to offer support for renters to prevent the situation becoming worse and forcing people into homelessness. The main issue at the moment is how the rising interest rate is making mortgages more unaffordable. Any household coming to the end of their fixed rate mortgage deal will feel the shock as their income is squeezed.
The Telegraph reported that landlords would need to increase their rents by £614 a month in London and the South East if they are to remortgage at current market rates if they aren’t going to make a loss. Hamptons estate agents revealed that rents would have to increase by 41% in this scenario. As a result, many landlords are leaving the rental market as they feel as though it is unsustainable and unfair to raise rents so much.
With fewer rental properties expected to be available, demand will only increase, which can also cause inflationary pressures for rental prices. Targeted support for homeowners struggling to afford their mortgage payments would be unfair for renters as they’ve already been grappling with unaffordable rents for years.
One of the issues facing renters is how much of their income goes to rent, making it more difficult to save up enough for a deposit. Home ownership is an aspiration for millions, but it can often be a trap. Halifax reported that renters are £500 a year worse off compared to homeowners, while the Equity Release Council estimated this to be £326,000 over a 30 year period. Those caught in the rental cycle would benefit more from targeted government support than homeowners.
Perhaps one of the easiest ways in which the government can help the situation is to build more affordable housing. House building targets have consistently been missed by the government year-on-year, which has caused demand to outweigh supply. In April, the average asking price for a first time buyer hit an all-time high of £224,963.
Sadiq Khan has recognised that 1 in 4 Londoners are struggling to afford their rent, falling behind on payments. He’s called on the government to allow him to be able to implement rental controls throughout the city. However, the government has refused, citing the reason that rental controls don’t work. Where the average rent in London in March was £2,501 a month, more and more renters will start to be more at risk of homelessness unless some help is implemented.