Half of tenants worried they won’t be able to pay rent next year

Half of renters fear they won’t be able to pay their rent next year, as 58 percent have seen rents rise this year due to the cost of living crisis.

Research by specialist mortgage lender Market Financial Solutions found that 49 percent of tenants feared they would not be able to pay their rent in 2023.

At the same time, 48 percent of landlords said they had increased rents on their properties due to rising interest rates and higher mortgage payments.

However, more than half (56 percent) said they would allow their tenants some degree of flexibility when it came to making payments.

The average rent in Britain has recently risen to more than £1,200 a month for the first time in history.

Typical values ​​hit £1,204 a month, according to Hamptons brokers’ figures for October. It’s up £80 per month or 7.1 per cent higher than a year ago.

With rapid growth, the typical rental household now spends 44 percent of its after-tax income on rent, the highest share since the Hamptons’ registration began in 2010.

According to the MFS survey, three quarters of tenants (77 per cent) say more needs to be done to control rents in the UK.

Last month, the Scottish Government introduced an emergency rent freeze law in the country, meaning rents cannot rise for most tenants until at least March 31, 2023.

While there have been calls from London Mayor Sadiq Khan for similar rent controls to be introduced in the British capital, it seems unlikely that they will be heeded.

Paresh Raja, chief executive of MFS, said: ‘It has been a hectic, challenging year, with key interest rates rising 2.9 per cent and inflation reaching 11.1 per cent.

“Our new research shows that this economic turmoil has forced landlords to implement rent increases, and that millions of people are concerned about whether they will be able to afford rent next year. These are hard findings.

‘However, our research also shows that the majority of landlords are sympathetic to the cost crisis; Many have chosen to freeze rents, while most are willing to be flexible when it comes to payments.

It seems clear that honest, candid conversations are needed to ensure that tenants are not subject to rising prices and that landlords can afford to pay back debt.

“Inflation and interest rates hurt different people in different ways – and while 2023 offers hope that both pressures will ease, we need to make sure there is support for those struggling financially in the current climate.”

Up: Rents rose 3.2% in the third quarter of the year, slightly below growth in the second, according to Rightmove

Affordability is also deteriorating for landlords. In addition to residential mortgages, they have seen mortgage interest rates rise in recent months.

>> Landlords can check the most recent mortgage rates using the This is Money calculator

Even before the mini-Budget in September, which rocked financial markets, the average two-year buy-to-let mortgage rate had risen 1.63 percentage points in two years, according to figures from Moneyfacts. It increased from 2.84 percent in September 2020 to 4.47 percent at the beginning of September this year.

They’ve also been hit by Jeremy Hunt’s fall statement, in a capital gains tax foray, that will see the typical property investor lose £2,600 on the sale of a home that has appreciated in value.

Tax burden: As of April 2024, the average landlord with a higher tax rate will pay £2,610 or 12% more in CGT when selling a home that has increased in value

This is the latest in a series of tax assessments for landlords in recent years. Between 2017 and 2020, the government phased out tax deductions on rental mortgages.

Previously, landlords could settle all their mortgage interest with their tax return.

This meant that a landlord with mortgage interest payments of £400 a month on a property let at £1,000 a month would only pay tax on £600 of that income.

But this system was replaced and they now only get a 20 percent tax break – which is a blow to higher income earners who pay 40 percent income tax.

The government has also introduced a 3 percent stamp duty surcharge for landlords buying new properties in 2016.

There will also be new energy performance certificate (EPC) legislation that means that rental properties must have an EPC of at least ‘C’ from 2025. Today, only four in ten homes reach this required level.

This is because older buildings – many of which are rented – often do not have well-insulated walls or roofs and drafty windows. The cost of retrofitting Victorian properties can run into the tens of thousands of pounds.

There are also concerns that an expected rent reform bill, due to be rolled out as early as next year, could remove a ‘section 21’ clause that allows for no-fault evictions.

All of these changes have led landlord groups to warn of an exodus of private landlords from the market, which could further boost demand and drive up rents.