Politics, legislation and economic changes – the UK renter is up against it.

Politics, legislation and economic changes – the UK renter is up against it.

Many mortgage holders breathed a sigh of relief as the Bank of England held off on another interest rate rise recently. But they’re not the only ones suffering in this challenging financial climate. Those who rent are at risk too. Indeed, they may be even more vulnerable to interest rate rises than those with mortgages.

The changing landscape of UK housing

The UK housing market has seen a major change in recent years. More people now rent rather than own their homes. What’s more, census data shows that mortgage payers are now in the minority. When compared to our European neighbours, only Germany, Austria, and Denmark have a higher proportion of renters compared to the UK. When we talk about renters being vulnerable, we’re talking about huge number of individuals and families.

The impact of rising interest rates

Over the past 18 months, interest rates have climbed from a meagre 0.1% to a significant 5%. Mortgage payers – especially those on variable rates or whose fixed deals have lapsed – have felt the pinch with higher monthly payments or extended loan terms.

Those who rent aren’t immune. Zoopla research estimates that around 60% of rented properties are mortgaged, mostly on interest-only deals, which makes them particularly susceptible to interest rate hikes.

For the two in five Britons who are renters, the prospect of rising monthly rents isn’t new. Even when mortgage rates were stable, many landlords had no choice but to increase rents annually to keep pace with inflation. Now that mortgage payments are rising, landlords may have to hike rents further to avoid losses.

The mortgage holder advantage

Mortgage holders are not immune to financial pressures, but generally enjoy more financial stability. Whether it is equity in their homes, savings, or higher average earnings, they can potentially negotiate lower monthly mortgage payments with their banks, a privilege the renter doesn’t have with their landlord.

Renters are often in a less favourable financial position. They are more likely to reside in substandard housing, have lower savings, and overall lower incomes. Proportionally, more of their income is spent on housing. The average mortgage holder allocates around 22% of their income to housing costs. For those who rent, the average is 33% (42% in London).

Smaller portfolio landlords and the grim reality of evictions

Section 24 removed a landlord’s right to deduct mortgage interest and other finance costs when calculating taxable income. In addition, there’s extra Stamp Duty, capital gains changes, rising interest rates, and the pending Renters Reform Bill. All these have disincentivised smaller portfolio landlords and many are choosing the leave the sector.

The consequence is that many tenants are being served with Section 21 Notices – so-called no fault evictions – and face being made homeless.

Over 30,000 people have sought homelessness prevention support after receiving Section 21 eviction notices since January 2022, a number that continues to rise.

Social housing shortfall

The waiting list for social housing in the UK now stands at 1.2 million. Meanwhile, local authorities often experience a net loss of social housing due to sell-offs and demolitions. The most vulnerable households are prioritised with others housed in temporary accommodation which, according to the government’s own figures, costs in the order of £1.6 billion annually.

Jasmine Basran of Crisis, the national charity for those experiencing homelessness, is calling for immediate government action to alleviate the housing crisis, pointing out that, with a clear plan of delivery, the annual £1.6 billion could be used to support people into long-term housing.

Housing has become a political football

Urgent measures are needed to address the housing crisis and provide affordable, stable housing for all. Meanwhile the small portfolio landlords who provided much balance to the sector are being squeezed out.

The sector is often used as a political football and there’s no consistency or clear long-term plan. There have been six housing ministers in the UK over the past five years.