Rising rents draining financial resilience

11th September 2023

Latest research Hargreaves Lansdown has found that the average renting household has just £180 left at the end of the month, while a household with a mortgage has £337.

Renters are less likely to have enough emergency savings to cover three months of essential spending. Only 45% cross the threshold, compared to 72% of those with a mortgage. They’re also  less likely to have enough sick pay or income protection cover. Only 62% do, compared to 91% of those with a mortgage.

Only 34% of renetrs have enough life cover, marginally less than mortgagees at 35% – and way behind those who own outright at 84%. They’re well behind on pension savings too. Only 18% are on track for a moderate retirement income, compared to 54% of those with a mortgage.

Commenting on the finding,s Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said “Rent is such a massive drain on our finances that trying to build anything for the future while meeting monthly rental costs is like trying to run a bath with the plug out. It means the financial resilience of renters is being washed down the plughole.”

“The relative cost of renting and paying a mortgage is shifting, so that on average it’s more expensive to buy a property with a mortgage than it is to rent the same property. However, renters earn much less on average – at a household average of £30,294 compared to a mortgaged household at £56,188. This means their rent swallows a bigger slice of their income.”

“Life is getting tougher too, and figures from Zoopla for the three months to June found that rents are up 10% in a year and account for 28% of pre-tax earnings. It’s taking a massive toll on the short-term financial resilience of renters. They have so little cash available at the end of the month that they’re unable to put key protections in place. They’re also unable to save for emergencies, so fewer than half have enough savings put aside”

“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. Fewer than half are on track for a moderate retirement income. For those who are renting later in life, this causes particular concern, because either they will buy even later, and risk having a mortgage in retirement, or they’ll need to keep paying rent after they retire. In either case, they actually need to save more for retirement to cover higher outgoings.”

“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.”

“The horrible truth is that on top of this if renters want to own, they somehow 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.”