Rental costs drain the strength of an ageing ‘generation rent’: they’re running a bath with the plug out

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, comments on the English Housing Survey, showing rental costs drain the strength of an ageing ‘generation rent’: they’re running a bath with the plug out.

Key points from publication:
  • 19% of people rent privately and 17% live in social rental housing.
  • 26% of those aged 35-44 rent privately – up from 18% in 2010/11.
  • 16% of those aged 45-54 rent privately, as do11% of those aged 55-64.
  • In London, 27% of people rent privately.

Figures from the 2020/21 English Housing Survey, ONS.

Sarah Coles says:

“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. The cost-of-living crisis has landed us with new, super-charged cash drains. And with more of us renting later in life, it can have a catastrophic impact on our financial resilience.”

The cash drain of rent:

“Renting is fundamentally more expensive than owning at the moment. Three quarters of people with a mortgage have a fixed rate deal, and even those on a variable rate still have relatively cheap mortgages by historic standards. The English Housing Survey shows that the average weekly mortgage payment is £174, and the average weekly private rent is £198. 

“The fact that on average renters tend to be paid less, means the impact on the finances of renters is even more striking: those with mortgages spend an average of 18% of their household income putting a roof over their heads, and private renters pay 31%.

“To make matters worse, rents have been rising through the roof. With more people renting later in life, and more landlords deciding to throw in the towel, figures from Zoopla for the first three months of this year found that rents are up 11% in a year – which is a 14-year high. And there’s no relief in sight. According to the Royal Institution of Chartered Surveyors, over the next five years rents are expected to grow faster than house prices.

“When we surveyed 10,000 people through Focaldata in June last year, we asked people to rate their finances overall, and homeowners were twice as likely to rate their finances as good or excellent (43% compared to 18% of renters). Renters were twice as likely to rate their finances as something worse than OK (47% compared to 22% of homeowners).”

The cost of everything else:

“While renters battle with higher monthly costs, the price of everything else is making it even harder to find the extra cash. In May inflation hit 9.1%, and it’s expected to peak at 11% in October. Energy and fuel prices are powering price rises, and supply problems are fuelling the fire.

“The ONS measures people’s ability to cope with rising costs by asking whether they could afford a £850 expense out of the blue. In early 2022, 29% of people said they couldn’t. After controlling for other characteristics, the chances of not being able to afford this expense were almost seven times higher for renters than for those who owned their property outright

“This reflects the findings of the first HL Savings and Resilience Barometer, produced with Oxford Economics, in January this year, which found that three in five renters don’t have enough wiggle room in their budgets to face price rises with confidence.”

No hope for saving for the future:

“All these cash drains make it incredibly difficult to make ends meet, let alone put anything aside for the future. Renters who are eventually hoping to get onto the property ladder are struggling to free up cash to save for a deposit. The English Housing Survey showed that while 81% of homeowners have savings, only 55% of private renters do. That was in April 2021, after a year of lockdowns saw savings hit record highs.

“It doesn’t help that runaway house prices have been inflating the size of the deposit they need at the same time. Average house prices were up 12.4% in April. They’ve increased £31,000 in a year – to a record high of £281,161. It means anyone saving for a 10% deposit would have needed to save an extra £3,100 just to stand still.”

Later in life:

“While this creates enormous problems for renters of all ages, as they get older it raises the horrible question of whether people can afford to retire. Those who have been able to buy will eventually pay off their mortgage costs, so they don’t have to factor them into their retirement income needs. Those who are still paying the rent not only have to set aside enough cash to give them an extra £800 a month on average, they also have to consider the fact that this rent will continue to rise throughout their retirement.

“So it’s particularly troubling that this group is less likely to have been able to put money into a pension. The first HL Savings and Resilience Barometer, produced with Oxford Economics in January 2022, found that only 17% of Generation X who are still renting have saved enough for retirement. This falls to 13% of  Baby Boomers who are still renting.

“It’s no wonder that when we asked people whether they were confident they could afford to retire, in April this year, while a third of people overall were confident (33%), this rose to two in five (42%) homeowners and plummeted to less than a quarter of those who were renting (23%).”

What renters can do:

“There are no easy answers, but if you are able to save anything at all in order to get onto the property ladder, then it’s worth making as much of your money as possible. If you’re aged 18-39 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.

“LISAs are also very tax efficient. You won’t pay income tax on any savings that grow in excess of the personal allowance and if you have a stocks and shares LISA you don’t need to worry about paying dividend or capital gains tax.

“You can withdraw money tax-free to buy your first home any time after the first year you hold a LISA. However, 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.”

Who can afford a moderate retirement income?
Homeowner (%) Renter (%)
Generation Z 56 16
Millennials 58 17
Generation X 52 17
Baby Boomer 36 13

Figures from a survey of 2,000 by Opinium for HL in April 2022

*Moderate retirement income as defined by the Pension and Lifetime Savings Association is £20,800 per year for a single person and £30,600 per year for a couple.


Kindly shared by Hargreaves Lansdown

Main article photo courtesy of Pixabay