The unaffordability of the UK housing market isn’t a new story. But the predicament of tenants is often overlooked. If you rent, you may feel you’re paying through the nose for the privilege.
An analysis of ONS data published this month shows rents rising twice as fast as mortgages. The ONS data shows mortgage costs only rose 6% from £130.80 to £138.60. Average rents on the other hand rose 12% from £121.50 to £136 per week.
The plight of tenants is even more revealing when you consider that as a proportion of income tenants pay a greater percentage of their income on rent than homeowners do on mortgages. Consider this. On average, tenants shell out about 29% of their income on rent. The equivalent figure for homeowners paying a mortgage is 13.9%.
It should be remembered this position of low mortgage payments relative to rents is likely to change when interest rates increase. At the moment most homeowners are sitting pretty on a standard variable rate. However the predicament of tenants is clear. How do you save up for a mortgage when a third of your income goes on rent?
Lobby group Pricedout believes the data is evidence of the “broken” property market, but of course averages are just that. The unaffordability of the UK housing market isn’t a new story. Perhaps the most striking figure of all is just how much of their income tenants pay in rent.
When we discuss what would happen if people lost their income, it’s commonly thought the self- employed pay mortgages. However it’s not just in London people opt to rent. With a third if income going on rent its worth asking what would happen if you were unable to work? Would you manage to pay your rent for 6 months or more?
Some tenants enjoy a periodic tenancy while others have a fixed term tenancy. A fixed term offers security but little flexibility if you lose your job or are unable to work. Depending on your circumstances its worth considering taking out specialist insurance in attention to any payment protection. This is because payment protection will only pay out on the linked credit card or loan but won’t cover your income.