Renters less financially resilient

Renters are less financially resilient than recent remortgagers according to reseach by Hargreaves Lansdown’s HL Savings & Resilience Barometer .

The research found that over two-thirds have poor financial resilience, compared to a quarter of remortgagers whilst only 43% of renters have enough emergency savings, compared to 71% of mortgagees and 87% of those who own outright.

At the end of the month, renters have an average of £193 left, compared to mortgagees with £353 and outright owners with £398. Renter incomes average £31,617 per household, compared to £49,279 for outright owners and £57,818 for those with a mortgage.

18% of renters are on track for a moderate retirement income, compared to 55% of mortgagees and 51% of outright owners.

Sarah Coles, head of personal finance, Hargreaves Lansdown said “Renting ruins your financial resilience even more than having to remortgage at a time of sky-high interest rates. Life was already tough enough for tenants, but with average rents up around 10% in the past year, millions are having the life squeezed out of their finances altogether.

“Average rents tend to be lower than average mortgage payments – and private rents tend to be similar to mortgage payments – but renters are on lower average incomes. The Barometer shows the average household with a mortgage earns almost twice as much as the average household that rents (83% more). It means their housing costs swallow a much bigger slice of their income.

“It’s taking a massive toll on the short-term financial resilience of renters. They have around £193 left at the end of the month, and they save just 4% of their income, compared to those with mortgages who save 5% and have £353 left at the end of the month. As a result, fewer than half of renters have enough savings put aside – compared to almost three quarters of mortgagees.

“But it’s not just their short-term resilience that’s suffering. They’re so busy making ends meet that they’re falling worryingly short when it comes to putting money aside for the future too. Renters will always struggle when it comes to making plans for later life. Being on lower incomes makes it harder for them to put money away. They also need to save more, because they face much higher costs in retirement. Homeowners can plan to pay off their mortgage by the time they retire, whereas renters will have a drain on their finances for the rest of their lives.

“There are some gaps that need to be closed as a priority. As a rough rule of thumb, if you’re struggling with financial resilience, your first priority should be to pay down any expensive debts. This will mean you’re wasting less of your income on interest payments, so should increasingly be able to find the money to boost your resilience in other areas.

“Next on the list is protection for you and any family. It means checking what’s available from your employer if you’re too sick to work – either through insurance or sick pay. It also means finding out how much life insurance you have through your employer – if any. If you’re not convinced this would be enough if something was to happen to you, it’s worth looking into buying cover yourself.

“You also need to think about emergency savings. As a general rule, people of working age should have cash to cover 3-6 months’ worth of essential expenses, kept in an easy access savings account. This will cover any costs out of the blue, and offer a cushion if you’re unable to work for a period. This feels like an awful lot of money, but don’t let that put you off. Even if you can only put away a small sum towards this each month, you’ll be grateful for whatever you’ve managed to save if you’re hit by the unexpected

“All of this requires a little extra cash each month, which we know is a major ask for renters. It means the whole process needs to start with drawing up a budget of everything you have coming in, and everything you’re spending. It feels like boring admin, but after your income has been squeezed for so long, you will have done the easy cost-cutting things that spring to mind. We’re now at the stage of digging deeper for savings.

“It will feel like a never-ending list, but you can’t afford to overlook pension savings either. Even when it’s an awfully long way away, cutting contributions will catch up with you eventually. It’s worth using a pension calculator to see whether you’re on track for the pension income you need. If you can’t do anything about it right now, you should at least consider boosting contributions next time you get a pay rise or change jobs, before you get used to the extra money.

“On top of this, if renters want to own, they have to put money aside for a deposit too. This feels like a mountain to climb, but if you can afford to save anything, you’re aged 18-39, and you have at least a year until you plan to buy, it’s worth considering paying into a Lifetime ISA. You can contribute up to £4,000 every tax year and in return you get a 25% bonus from the government. It means someone paying in £4,000 would get another £1,000 from the government, which has to help. However, it’s important to understand that if you take money out for any reason other than to buy a first home or for retirement once you’re 60, you will pay a 25% penalty, so it’s not the right home for your emergency savings.”