TENANTS' FINANCES FACE RECORD SQUEEZE

March 2022

Financial pressures are raining down on households.  Last year, the average household in Great Britain spent 42% of their post-tax income or £13,560 on rent, the highest proportion since our records began in 2010.  This meant that private tenants spent a collective total of £62.4bn on rent last year, up from £58.2bn in 2020.

When other bills such as gas, electricity, council tax, broadband and tv licences are included, it meant that the average household spent 52% of their post-tax income on rent and bills in 2021, the highest share since 2016. Collectively, tenants paid a total of £77.8bn in rent and household bills last year, up from £73.4bn in 2020.

But while last year it was rental growth that ate into tenants’ incomes, this year it’s more likely to be energy costs and these figures are set to surge in 2022 as the cost of living crisis deepens.  By the end of this year, we estimate that the average rented household will spend a record 54% of their post-tax income on rent and household bills, equating to an extra £4.6bn paid by tenants.  This will cost the average household an extra £1,008 each year with the total amount they spend on rent and bills set to rise to £17,914 per household by the end of 2022, up from £16,906 in 2021.

The rise in energy bills is set to hit tenants in the East Midlands the hardest. East Midlands tenants currently spend a higher share of their post-tax income on bills (16%) compared to anyone else. By 2022, tenants in the region could see the share of their post-tax income spent on rent and bills rise to 58%, up from 56% in 2021.

Meanwhile London renters will see less of an impact as household bills here only make up 6% of a tenant’s post-tax income. This is partly because incomes tend to be higher in the capital, but also because properties in the capital tend to be a little smaller, newer and therefore better insulated, lowering bills. However, the high value of property means that London tenants still spend £23,380 on rent each year which equates to 48% of their post-tax income. Overall, London tenants are set to spend 55% of their post-tax income on rent and bills in 2022, slightly up from 54% in 2021 and 49% a decade ago.

Tenants in the South of England have the smallest disposable incomes, compounded by strong rental growth since the start of Covid. The South East is the only region where rent makes up more than half (52%) of households’ post-tax income, with utility bills adding a further 12%. The average privately rented household in the region spent £18,490 or 64% of their post-tax income on rent and bills in 2021, up from 59% in 2019. This could rise to 65% by the end of 2022.

With financial pressures mounting up it’s clear to see there are hard times ahead. But the good news for tenants is that rental growth has been slowing for the last six consecutive months. The average cost of a newly let property rose 6.7% in February compared to the same month last year, down from an annual growth of 7.0% in January and a peak of 8.7% recorded in July 202. However, this still marked the strongest February for rental growth since our records began in 2013. While rental growth is cooling in Southern regions (where rents have risen the most since Covid began), it’s the Midlands and North that are now picking up pace.

While we expect to see this year’s rental growth cool from 7% today to 2.5% by the end of the year, tenants’ discretionary incomes will be increasingly eaten up by utility bills. Even if household incomes rise by the forecast 3.75% it’s unlikely to be enough to fully offset rising utility bills. With more income tied up in essentials, it’s likely that discretionary spending will fall later this year which is bad news for the wider economy. And as mortgage rates creep up, homeowners are likely to face similar pressures too.