Tenants Spend 42% of Income on Rent

Record-breaking growth in the rental market means that tenants are now spending an average of 42% or £13,560 of their earnings on rent.

Hamptons, one of the UK’s leading estate agencies has made the claim from results in its Monthly Lettings Index Report. Their findings show that this is the highest proportion since the Index was launched in 2010.

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Along with household bills such as gas, electricity, council tax, broadband and TV licenses, the average household spent 52% of their post-tax income on rent and bills last year.

Tenants paid a total of £77.8bn in rent and bills last year, up from £73.4bn in 2020.

By the end of the year, this is set to grow to 54%, as the cost-of-living crisis worsens. This would be equivalent to an extra £1,008.

Rental growth in Great Britain has slowed

However, Hamptons has also reported that rental growth has slowed across Great Britain for the sixth consecutive month.

In February, the average cost of a newly let property increased by 6.7% in comparison to February. This is down from an annual growth of 7% in January and a high of 8.7% in July 2021. 

By the end of 2022, Hamptons is predicting growth to further slow by around 2.5% but says this will be offset by increases in the energy cap and general price rises.

These things collectively could see tenants’ household bills rise by 15%. This would significantly outrun earnings growth, which is expected to rise to 3.75%.

What areas are hit the hardest?

The Index findings suggest that tenants in the East Midlands have been hit the hardest, as they currently spend a higher share of their post-tax income on bills (16%) compared to anywhere else.

Head of Hamptons research Aneisha Beveridge says financial pressures are “raining down” on households. “But while last year it was rental growth that ate into tenants’ incomes, this year it’s more likely to be energy costs,” she said.

Rental growth is slowing as affordability pressures bite and we expect rents across Great Britain to end the year 2.5% up on 2021, down from 7% today. However, even if household incomes rise by the forecast 3.75%, it won’t be enough to fully offset rising utility bills and tenants will feel the pinch.

Aneisha Beveridge points out that rent and bills are usually paid first, with leftover funds saved or spent on other things, so that discretionary spending is likely to fall later in the year. However, it’s worth noting that not all tenants will prioritise their rent, so make sure that you are covered with Rent Guarantee Insurance in case your tenant falls into arrears. 

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