Forever renters and the impact on the property market

forever renters

Over recent years, the rising cost-of-living has made housing unaffordable, which is starting to affect middle earners. This has led to a rise of forever renters having an impact on the property market. The problem lies with the disproportionate gap between average income and house prices. We explore the topic of forever renters and how today’s property market is being affected both from a sale and rental perspective.

High inflation and interest rates have led to people having less disposable income, which in turn has had a knock-on effect on the property market. In real terms, salary levels have not stayed in line with booming house prices. As a result, many people who theoretically should be able to buy their own homes are forced to rent. Due to escalating financial pressures and a squeeze on income, these people go on to become forever renters.

Problem debt for renters

“15% of private renters… are in problem debt”

According to findings by the debt advisory charity, StepChange, it’s thought that 1.1 million people in the UK are struggling with problem debt. When people are trapped within a debt cycle, this inevitably affects their credit score and their ability to get a mortgage. It’s worth noting that this does not necessarily happen to only those on low incomes. In fact, many seemingly affluent people can find themselves with mounting debts or credit issues.

Put simply, many people cannot afford to buy their own homes. However, rising rental costs, a volatile market, and a lack of available rentals are compounding this situation. Renters are also finding themselves trapped paying high rents because they are too afraid to move out.

Since the Renters Reform Bill was introduced, there has been a rise in landlords selling off their properties. Due to contentious regulations and concerns from landlords fearing bankruptcy, there are now fewer properties available to rent. According to uSwitch, around a third of landlords were intending to sell a property in the last quarter of 2023.

Rental market pressures have led to a lack of supply and an increase in demand. As a result, the average rental price has increased by 6.2% in the past year (ONS – January 2023 to January 2024). This added cost to an already tight budget is affecting people’s disposable income, as well as their ability to save for a house deposit.

Property market schemes

“Average home sold is £275,000, while average full-time earnings are £33,400”

Office of National Statistics

As a comparison, back in the 1990s, the gap between house prices and average earnings was at a ratio of four to one (House Buyer Bureau). Since the 00s, property affordability has steadily risen, and today this ratio is around eight to one. When you compare the average salary of around £33k and an average house price of £275k, the prospect of buying a home is out of reach for many people. This also applies to many on higher-than-average salaries.

The government has introduced a few schemes that can help people to get onto the property ladder. For first-time buyers, there are three government-backed schemes available:

  • The mortgage guarantee scheme, extended to 2025, allows first-time buyers to buy a property with only a 5% deposit. For example, if you want to buy your first home for £275,000, you only need a deposit of £13,750.
  • First Homes scheme – available only in England, this gives you a 30 – 50% discount when you buy a new-build home. There is an income threshold of £80,000 (£90,000 for London-based properties), and this total applies to joint first-time buyers.
  • Shared Ownership allows you to buy a share of a property, typically between 10% and 75% of its value. You would then pay rent on the remaining amount to the landlord, resulting in smaller mortgage repayments.

If you have previously bought a property but have had to sell up and rent, there may be options you haven’t considered. It’s worth having a financial review to look at ways to consolidate any debts, so you can start saving towards a house deposit.

Financial Advisers, Nottingham and Lincoln

As financial planners, we offer financial advice in a range of areas. We will help you put in place a sensible financial plan to help you save towards your first or second home. Through our detailed cash-flow planning, we can create a Lifetime Wealth Forecast. This will form a crucial part of your financial plan and will enable you to plan ahead for your future.

If you’re currently renting a property, get in touch to book a financial review with our financial planners.