Staggering rents swallow 38% of income
So should we be worried?
Expensive rentsAccording to FindaProperty.com, the average monthly rent in the UK is now £868, which is equivalent to a staggering £10,416 per year. This means we spend an average of 38% of our income on rent. Meanwhile things in London are even more bleak, where rent takes up around 71% of income on average and adds up to £25,824 a year.
This isn't anything particularly new. The figures for last year were roughly the same, and rents have actually fallen from the high point of September last year. Samantha Baden, property analyst at FindaProperty.com, said some types of properties remain very expensive: "Smaller homes remain in limited supply and as a result, individuals and couples are still facing record asking prices for smaller flats and therefore spending a significant proportion of their overall household income on this. This is particularly pertinent in areas like London where demand is high."
How much is ideal?The rough rule of thumb for rent is that you should aim to spend somewhere around a third of your income on it. This, of course, varies depending on your circumstances. Those who also have massive outgoings like childcare or loan repayments will naturally not be in a position to spend as much on rent.
It's essential therefore to do your household budgeting and work out for yourself what you can afford in rental terms. In any case, it's safe to say that if you're spending almost three quarters of everything you make, then there's a good chance you are suffering the consequences of this massive imbalance.
So is renting damaging, or is this the best way to live?
Renting advantagesThe theory is that renting offers the ultimate in flexibility. If you can't afford it, unlike a mortgage which you are stuck with, you can just leave and find somewhere cheaper. Similarly if your job moves or need to be in a school catchment area you can move to exactly where you need to be in an instant.
You aren't tied to a property which is difficult to sell, and completely unpredictable in terms of costs. You can plan and budget and move to your heart's content.
You also free yourself from the tyranny of interest rates. If rates rise, your rent is still guaranteed.
DisadvantagesThe cost is a sticking point. Recent research from Halifax suggests that it is over £100 cheaper per month on average for first-time buyers to buy than to rent.
Similarly, the flexibility is not necessarily so easy to come by. You are tied for the contract period, which can see you staying in an expensive property for up to a year after you decide you need to move. You are also tied by the realities of life. You may have children at school, friends next door and a lifestyle you don't want to leave behind.
Even if you want to move somewhere cheaper, there's not necessarily that option. It may well mean upping sticks entirely and dealing with the pressure and expense of a commute instead.
If you are stuck in a property, the expense can cause you long term problems. Those who are spending a small fortune on rent every month will never have the spare cash to save up for a deposit and will never get on the housing market. Property will end up in the hands of the wealthy few, and renters will spend the rest of their lives at their mercy. It means that when they are retired and on smaller fixed incomes, they won't be free of the cost of putting a roof over their head.
You will also never build up an asset. At the moment thousands are using their property to fund long term care or to extract extra income for their retirement. Long-term renters will never have that asset to call on.
Finally, there is the knock-on effect on the economy. If we are spending every spare penny on rent, how will we ever afford to start spending and support local businesses into profitability? According to Scottish Widows once the essential outgoings have been paid, including mortgage/rent, credit card bills and grocery shopping, 8.2 million adults have absolutely nothing left to spend at the end of the month, and a further 9.8 million have under £50 left. That's hardly going to get the economy moving is it?
But what do you think? Is renting or buying the answer to our problems? Let us know in the comments.
Proportion of income on rentLondon 71%
South East 42%
South West 39%
West Midlands 32%
North East 32%
North West 29%
Yorkshire and the Humber 29%
East Midlands 28%