Renters vs owners: Tenants are twice as financially vulnerable

One in three (35%) private renters only have savings to sustain them for less than a month, a survey by Focaldata has found.

This compares to one in six (17%) mortgage holders and goes some way to explaining why tenants who lost their jobs during the pandemic were in a particularly vulnerable position.

Frustratingly for many landlords this vulnerability was passed onto them in the form of prolonged unpaid rent, while renters couldn’t be evicted due to the eviction ban.

Only one in five (19%) private renters say their finances are in good shape, compared to half (50%) of those who own their own home outright, and a third (35%) of those with a mortgage.

Sarah Coles, personal finance analyst, Hargreaves Lansdown, said: “Generation rent is being wrung dry, and the spending squeeze is making it worse.

“Only one in five say their finances are in good shape and more than one in three couldn’t last a month on their savings.

“Their finances are on a knife edge, so even the smallest surprise runs the risk of causing financial chaos. Fortunately, there are ways to build your resilience, even when you’re renting.

“You might think this is a problem for young renters, and is just a function of starting out in life with a relatively low income and higher outgoings, before you’ve had the chance to build up any savings.

“However, the savings gap between renters and owners actually grows as we get older, and is highest among those aged 65 and over. If you’re part of Generation Rent, you need to improve your resilience right now, because it’s not automatically going to get easier over time.”

Just under half (48%) of renters save less than £50 a month, compared to a quarter (26%) of owners.

Tenants typically spend more on rent than owners spend on their mortgage, as almost 30% of their income goes towards paying the rent, compared to less than 20% for mortgage holders.

In recent months the cost of petrol, energy bills and food has risen, making things more challenging.

Hargreaves Lansdown published five steps to resilience for ‘generation rent’:

1. Draw up a budget. It’s the easiest way to keep on top of your finances, but so many of us don’t get round to it. Make a list of everything coming in and everything going out, and then you can tinker with the figures to find a way to have a little left over each month.

2. For some people, this will be a case of giving up things you don’t get an awful lot of value for, shopping around and trading down. For other people there will be some bigger lifestyle changes on the cards. Try not to rule anything out at this stage.

3. Once you’ve freed up a sum, start with debt. The more you’re spending on debt repayments and interest, the harder it will be to make ends meet. See if you can switch your debts to pay less interest. Once you’ve switched, keep up minimum payments on everything, but focus your efforts on paying off the debt with the highest interest rate first.

4. Give yourself strict rules on debt in future – otherwise you’ll be stuck in the emergency debt repayment step for life. You should never borrow for things you want – only for the things you need – and you should never borrow without a fool-proof and affordable plan for paying it back.

5. Build an emergency safety net. Once your debt is repaid, you can use the cash you have freed up to work towards building 3-6 months’ worth of essential spending in an easy access account, just in case of emergencies. It feels like an enormous target, but when you’re hit by the unexpected, you’ll be grateful for whatever you’ve managed to put away.

Comments 1

  1. Not surprising really. Home owners in general had or generated spare income that allowed them to save up for a deposit in the first place so they still have some spare income or a saving habit so they can have something put by. Many renters would prefer to be buying their homes but don’t have the spare income to save up for a deposit, even though as the article says many of them manage to pay rent that would not be far off or exceeds what the mortgage costs would be on the property they are renting if only they had the deposit. However, even if they have a deposit but are only just getting by, they would not qualify for a normal mortgage so they are stuck.

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