Britain’s Increasing Rental Market: Impact on Homeowners and Renters
Mortgage payers are now in the minority in the UK, according to data from the census. The number of people renting and owning their homes outright has surpassed the number of people still paying off their mortgages. Only three countries in the EU – Germany, Austria, and Denmark – have a higher percentage of renters in their population than the UK. As the Bank of England prepares to announce a new interest rate, the question arises: does this shift towards renting leave us in a better or worse place?
The Impact of Rising Interest Rates
In the past 18 months, interest rates have risen from 0.1% to 5%, and it is expected that the Bank of England’s announcement will see rates rise even higher. This increase has had a significant impact on mortgage payers, especially those with variable rates or expired fixed deals. Many have experienced significant rises in their monthly payments or have been forced to extend their mortgage terms, resulting in a slower repayment process.
For renters, the impact of rising interest rates is also significant. Renters already spend a higher percentage of their income on housing costs compared to mortgage payers – an average of 33% (42% in London) compared to 22% for mortgage payers. Additionally, renters are more likely to live in non-decent standard homes, have lower savings, and lower overall incomes.
The Vulnerability of Renters
Research by Zoopla estimates that around 60% of rented properties in the UK are mortgaged, with many on interest-only mortgages. This means that renters are particularly exposed to changes in interest rates. While mortgage payers have seen their monthly repayments increase, landlords may be forced to raise rents even further to cover their rising mortgage costs. This puts renters in a vulnerable position, especially those with already limited financial resources.
Andi Michalakis, a 51-year-old renter in Stevenage, shares her experience of the impact of rising rents. She has been living in a three-bed house for the past nine years, and her rent has typically increased by £25 per month each year. However, at the beginning of 2022, her rent increased by £75, and less than a year later, her landlord asked for an additional £100. This increase was too much for Andi to afford, considering her changed work-life and health during the pandemic. Despite her efforts to negotiate with the landlord, she received a Section 21 eviction notice, leaving her at risk of homelessness.
Andi’s story is not unique. More than 30,000 people have sought homelessness prevention support after being issued Section 21 notices since the start of 2022. Many renters struggle to pass affordability tests for new rentals after being evicted, even with a history of paying rent on time.
Competition in the Rental Market
The rental market in the UK is highly competitive, with five people competing for every room advertised in house and flat shares on SpareRoom. Demand for rental properties has increased by 42% from 2019 to 2023, while the number of available rooms has decreased. This imbalance has led to faster rent increases and motivated some landlords to remove long-standing tenants in favor of higher-paying renters.
Rents for newly advertised properties have increased even faster than for existing tenancies. The average price of rental properties advertised on Rightmove increased by 10.2% in the year to June, while prices for rooms in house and flat shares advertised on SpareRoom are 14.5% higher than a year ago.
The Challenges of Social Housing
The current waiting list for social housing in the UK stands at 1.2 million. Despite a rising population, many local authorities experience a net loss of social housing due to sell-offs and demolitions. This lack of capacity means that the most vulnerable homeless households are prioritized for social housing, while others are moved into temporary accommodation.
Crisis, a homeless charity, suggests that the government can take immediate action to ease the housing crisis. They propose unfreezing housing benefit to make more properties affordable and increasing the supply of social rented homes. The government’s Renters (Reform) Bill aims to deliver a fairer deal for both renters and landlords by abolishing Section 21 “no fault” evictions and improving the availability of social housing.
While mortgage holders may face challenges due to rising interest rates, they are generally in a more comfortable position compared to renters. Mortgage holders often have equity in their homes or other savings to fall back on, and they can negotiate lower monthly repayments with banks. In contrast, renters face higher housing costs, limited savings, and the risk of eviction.
As the UK continues to grapple with the increasing rental market, it is crucial to address the challenges faced by both homeowners and renters. By implementing measures to support affordable housing and protect tenants’ rights, the government can work towards a more balanced and sustainable housing market.
