Renters ‘more vulnerable’ to economic shocks as landlords told to brace themselves for long term uncertainty

July 03, 2020

Renters are in a more vulnerable financial position than homeowners and are more likely to suffer during an economic crisis, new research has found.

The latest report from the Office of National Statistics (ONS) shows renters typically spend a higher proportion of their budget on essential items such as bills and foods, while another survey found more than one in three young renters were earning less as a result of the coronavirus crisis.

Tenants spend 61% of their usual weekly budget on essentials, while homeowners typically spend just over half – 52% – of their household allowance on essential items, the ONS data showed.

Some of the imbalance is accounted for by the difference in household overheads; renters spend 28% of their income covering housing costs, while homeowners spend 21%.

The ONS data also revealed that renters typically have less financial wriggle room than those who own their own property. Tenants spend proportionally less on holidays and eating out than homeowners so they have fewer areas to cut back on should they find themselves financial squeezed.

The ONS figures come as another survey found buy-to-let landlords were heavily exposed to young renters most at risk of losing their job. Those behind the study said landlords and letting agents should brace themselves for further disruption – and not just in the short term.

The new research from flatfair and Rowan Asset Management is a stark warning for landlords and letting agents in the current climate.

As Franz Doerr, CEO of flatfair, says the ONS figures “do not come as a great surprise” to many in the buy-to-let sector, they do “underline the threat that coronavirus poses to the rental market”.

He accused the government of “kicking the can down the road” and urged them to take action to support tenants and landlords as the long term consequences of the crisis look set to impact the sector for some time to come.

Official estimates suggest the pandemic could lead to 10% unemployment, a huge leap from the 3.9% in March. The UK has not seen such high unemployment figures since the recession of the 1990s.

George Jackman, chief investment analyst at Rowan Asset Management, said: “It’s clear that there is going to be a sharp, short-term impact on many young people’s income due to the economic distress caused by the virus.

“But the more worrying aspect of this whole crisis is how this young cohort of workers will be able to find stable employment over the long-term, with sectors like retail looking set to change fundamentally. It’s really hard to see retail being able to employ 2.8 million again any time soon, and right now there aren’t any emerging industries in this country that will be able to step in and fill this gap.”

Almost half of all renters in the UK are aged between 16 to 34, an age group particularly exposed to the currently volatile jobs market.

More than one in three 18 to 24-year-olds are earning less than before the outbreak, according to research by the Resolution Foundation.

Another survey by the housing charity Shelter found one in five renters in England expected to lose their job in the next three months.

And for some two million tenants in the UK, losing their jobs could leave them unable to pay their rent, the same research found.

If this scenario pans out as forecast, it could have wide reaching effects on the long term recovery of the buy-to-let sector as well as individual landlords and agents.