'The rental market is an absolute horror show': Sarah Coles on the pain of renting a home

The number of tenants is growing rapidly, while rental properties are rapidly disappearing, and as a result there’s nothing available to rent. On those rare occasions something hits the market, figures out this week show they’re gone within 25 days – ten days faster than before the pandemic. In my experience it’s much faster than this. You need to book a viewing on the day it’s listed, and it’s let by the end of the week.

The latest RICS Residential Market survey found that tenant numbers are still growing – and they’re rising more rapidly than average in Yorkshire and Humberside. There are plenty of forces at work here. More people are renting later in life, because getting onto the property ladder has become so expensive. The figures are most striking among 24-45-year-olds, where the proportion who live in their own home has fallen from 64% a decade ago to 59% - and private renters have risen from 20% to 25%. The trend is also driven by the fact that more people are living alone: 30% of households are made up of people living alone, or 8.4 million people.

Meanwhile, the number of properties available to rent is falling, because landlords have been selling up and shipping out. This is partly because of changes to the tax rules. The tax you pay when you buy a rental property rose in 2016 when the government added a 3% stamp duty surcharge for a second or subsequent property. You also pay more tax as you go along, because since 2020, you haven’t been able to deduct your mortgage as an expense when you calculate your rental income. You get a 20% tax credit instead, but it’s not as generous for an awful lot of landlords. Meanwhile, the frozen income tax thresholds have also pushed more landlords into paying higher rates of tax.

When landlords sell up, there’s more tax to pay too. They pay a higher rate of capital gains tax on profits from property than on other investments, like shares, at 18% for basic rate taxpayers and 24% for higher rate taxpayers. They also pay tax on more of the gain, because in the past two years the annual capital gains tax allowance has been slashed from £12,300 to £3,000.

In addition to tax issues, landlords face more stringent rules, which have driven their costs up. These are designed to protect renters, but the extra costs are persuading landlords to sell up instead. Those who remain are spending more on their properties, and face much higher mortgage payments, so to make the sums add up they’ve hiked rents 9.2% in a year.

The sheer scale of rent rises has driven a coach and horses though the finances of renters. Two in five people say their rent or mortgage has risen in the past 6 months and a third say they’re finding it difficult to afford.

Private rents are actually similar to mortgage payments at the moment, but renters are on lower average incomes, so housing costs swallow a much bigger slice of their income. In fact, the HL Savings & Resilience Barometer shows the average household with a mortgage earns almost twice as much as the average household that rents. As a result, renters only 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. So it’s no surprise that fewer than half of renters have enough savings put aside to cover emergencies – compared to almost three quarters of people who own with a mortgage.

It’s not just the short-term resilience of renters 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. Only a fifth of Millennial and Generation X renters are on track for a moderate income in retirement. The rest are set for a nasty surprise.

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.

And the costs aren’t just financial. Renters also tend to move more often, which makes it difficult to put down roots. This can cause problems for everyone, especially if rising rents force them into a continual cycle of renting smaller and smaller homes, further and further from work. It also raises issues for the 32% of private renters who have children, who risk having to uproot them from school when their tenancy comes to an end.

Over time, we can hope that falling interest rates take some of the pain out of the mortgage market. However, for renters it’s hard to see what will change to improve the situation. For us, I’m hoping we’ll get there by calling the second any property hits the market, and getting an offer in first. As the deadline approaches, I won’t rule out offering more than is being asked for, and possibly taking biscuits to every viewing. If we end up living in a static caravan on our own drive and a tent in the back garden, it’s a decent sign that the rental market is broken.

Hoarding savings

So much of our financial lives seems about having to do more. We’d be so much more resilient if we could save more, invest more, or put more into our pensions. However, millions of people don’t actually need to find a penny more to improve their resilience – they can just move existing money around slightly and it’ll make a major difference to their overall resilience.

A special edition of the HL Savings & Resilience Barometer has found that the proportion of households with enough emergency savings has risen from just under half to around two-thirds over the past five years, but there has also been a rise in people hoarding savings and neglecting other areas of their finances.

The proportion of people who are on track with their pension has fallen. 12.2 million households don’t have enough pension savings for a moderate living standard (61%). However, 6.9 million of them have the solution in their own accounts, because they’re not in arrears and have more than enough savings and investments, so they can massively boost their overall resilience by putting some of this into their pension.

Similarly, 6.4 million households have no arrears and more than enough savings, but no investments, so a switch into a stocks and shares ISA could help rebalance their finances and build their resilience.

It means that anyone who has been able to put money aside, and is hanging onto it in cash, just in case life gets tougher, it’s worth looking at the bigger picture. If you already have cash to cover 3-6 months’ worth of essential expenses in an easy access savings account or cash ISA (1-3 years’ worth in retirement), then it’s time to consider moving your money, and beefing up other areas of your finances.

SARAH COLESHead of Personal Finance and Podcast Host for Switch Your Money OnHeadline Money Expert of the YearHargreaves Lansdown