Renters are almost 5 times more likely to be experiencing financial vulnerability

The cost of living crisis has been hard on everyone, but a report released this week has confirmed that those who rent their homes are likely to be struggling the most.

Moneytransfers.com can report that renters have far higher odds of experiencing financial vulnerabilities than those in any other category of housing. While soaring interest rates on mortgages have been the focal point of press coverage over the past six months, the unfortunate reality for millions of tenants across the country is that they are even more exposed to challenging economic times. Renters are almost twice as likely to suffer financial distress as their home-owning counterparts, and are a shocking 4.4 times more vulnerable than those who own outright.

To give just one example, a selection of renters and homeowners were asked how confident they felt that they would be able to deal with an unexpected payment of £850. Amongst the latter group, only a relatively small proportion thought that they would struggle (12% in the case of outright owners and 28% in the case of mortgage-holders), but amongst renters the majority of those asked - 55% - admitted that they would be unable to make the payment.

Renters are more likely to turn to credit

In order to make ends meet against the backdrop of falling real-term incomes, renters in particular are having to turn to credit to keep on top of bills. Overall they are more than 4 times more likely to fall back on credit cards than outright owners, and even then a significant majority (61%) report finding it difficult to pay their basic energy bills. In a sign that intergenerational inequality does not end with property ownership, the statistics show that adults in the 25-34 year old age group are the most-hard hit overall whatever their housing arrangements, being a shocking 220% more likely to experience financial distress than their counterparts aged 75 and over.

People in the 25-34 year old age group are statistically more likely to be young families, or couples considering starting a family of their own. At this stage of their lives, having to deplete savings and rely on credit makes it even harder to get onto the housing ladder and therefore the circle repeats itself

Jonathan Merry CEO of moneytransfers.com

Indeed many families are simply not well placed to withstand the challenges of a severe cost of living crisis. The report found that parents living with dependent children were as much as four times more likely to experience some form of financial vulnerability than non-parents, while more than half reported being unable to save any money at all within the next 12 months. For many in this group, home ownership is nothing but a pipe dream.

*Rent PCM

Rising mortgage costs make for a bleak outlook

The future certainly looks bleak at the moment, and rocketing housing costs are adding to the pain of rising bills. Some 27% of adults interviewed in the most recent sample period (8-19 February 2023) revealed that their rent or mortgage payments had increased over the past year, while those in the 30-49 age group proved to be slightly worse off than average, with 31% experiencing increases. It is not therefore surprising that more than a quarter of those interviewed admitted that they were going to find it difficult to afford their rent or mortgage payments in the future.

It’s not just rent or mortgage payments that are a growing burden, with rising energy bills being a constant presence in the news at the moment. The data found that adults who use prepayment metres are almost twice as likely to resort to using credit to help offset increases in the cost of living (26%) compared with those who pay by direct debit (14%).

Growing financial difficulties undoubtedly have an effect on the nation’s mental health, with many feeling dejected and disempowered because of their tough circumstances. Those unable to save any money over the coming 12 months are significantly more likely to report feelings of anxiety, unhappiness and a lack of self-worth.

How can we combat the crisis?

So what can be done to combat the crisis? The government has pledged a payment of £650 to help with rising costs, but the reality is that this does not go far enough, and in any event only 8 million households are eligible. Moreover, with Rightmove reporting that average cost of rent outside of London has risen by 9.7% in the past year alone (with rents in the capital having risen even more, at 15.7%), there is a systemic problem that needs to be addressed.

Despite an expected fall in house prices on the horizon, Rightmove is forecasting that average rents will continue to rise by another 5% during 2023.

We in the UK have to contend with the fact that our rents are the highest in Europe, according to research from the National Housing Federation. In fact, data released in January 2023 reveals that there is only one area of the country (the West Midlands) where rent is affordable for lower income households, i.e. where tenants spend less than 30% of their income on rental costs. The UK average is 40%, whereas in European countries the average is a much more reasonable and affordable 28%. While UK homeowners fare better than their renting counterparts, very high property prices relative to Europe nonetheless mean that those relying on a mortgage will find themselves struggling in these difficult times.

The team at moneytransfers.com is hopeful that inflation, interest rates and the cost of living will be brought back under control in the near future, but if that does not happen very soon it would seem that more robust intervention and support from the government may be the only way to keep many millions of families off the breadline.