Blog, Renting

Rental Hell – Rising Rents Drain Financial Resilience

Figures from the HL Savings and Resilience Barometer have revealed that rising rents are draining individuals of financial resilience. According to the research, the average renting household has just £180 left at the end of the month, while a household with a mortgage has £337.

The research also indicated that renters are less likely to have enough emergency savings to cover three months’ of essential spending. Only 45% cross that threshold, compared to 72% of those with a mortgage. 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.

Sarah Coles, head of personal finance, 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 rentswallows 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.”

The Impact

The cost-of-living crisis is 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.

Closing The Gap

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.

Preparing For Emergencies

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.

Thinking Of Retirement

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.

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.

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