Yahoo Finance How to build financial resilience when you're renting
In last week’s spring budget, Jeremy Hunt trumpeted a tax cut for landlords who sell up. He’s hoping it will encourage people to sell their second homes and free them up for locals. However, it could have a less positive side effect for renters, who could see their monthly costs rise even further.
Why do renters have lower financial resilience?
Landlords who are hanging onto homes in a bid to avoid capital gains tax could decide that the time has come to join the large numbers of people leaving the industry. The RICS residential property survey shows that this trend has become well established, and each passing month sees more people looking for rental property, and less of it available.
As a result, rents have climbed. The average monthly rent outside London hit a new record of £1,280 — up 9% — and in London it’s an uncomfortable £2,631.
It means renters are facing a horrible squeeze on their finances. Average private rents tend to be similar to mortgage payments, but renters are on lower average incomes. The Hargreaves Lansdown Savings & Resilience Barometer showed the average household with a mortgage earns almost twice as much as the average household that rents. It means their housing costs swallow a much bigger slice of their income.
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This hits every corner of their finances. The barometer showed that fewer than half of renters have enough savings put aside for emergencies, and less than a fifth are on track for a moderate retirement income. They’re also left with just £193 per household at the end of the month. Compare that to people with a mortgage — almost three quarters of whom have emergency savings, half are on track with retirement planning and they have £353 left at the end of the month.
It’s why renters have even worse financial resilience than those who have been forced to remortgage while interest rates have been higher. Over two-thirds of renters are classed as having "poor" resilience, compared to a quarter of remortgagers.
What to do if you're renting and struggling
If you’re renting and struggling, it can be difficult to know where to start. However, the easiest way to make the biggest difference is to tackle expensive borrowing first. This will mean you’re wasting less of your income on interest payments, so should increasingly be able to find the money to boost your resilience in other areas.
Next on the list is protection for you and any family. It means checking what you’ll get from your employer if you’re too sick to work — either through insurance or sick pay — and asking how much life cover they offer too. If you’re not convinced this would be enough if something was to happen to you, it’s worth looking into buying cover yourself.
After this, building your emergency savings should be next on the list, and considering whether you’re putting enough into your pension.
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It will feel like a never-ending list, but the further you can make it through these priorities, the more protection you will have, and the firmer a footing your finances will be on.
If you’re struggling to make a dent in things like savings or pensions right now, it makes sense to consider them next time you get a pay rise or change jobs — before you get used to the extra money.
You don’t need to sort every corner of your finances overnight — just do what you can afford to, when you can afford it, and be proud of what you have achieved rather than worrying about what’s left on the to-do list.
Sarah Coles is a personal finance analyst at Hargreaves Lansdown and co-presents Switch Your Money On podcast.
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