The average renting household has only £180 left at the end of the month, compared to £337 for those with a mortgage, according to the HL Savings & Resilience Barometer published in July 2023.
The figures also show a concerning lack of emergency savings among renters. Only 45% have enough to cover three months of essential spending, as opposed to 72% of mortgage holders. In terms of sick pay and income protection, only 62% of renters are covered, compared to 91% of those with a mortgage.
Sarah Coles, head of personal finance at Hargreaves Lansdown, put it bluntly: “Rent is such a massive drain on our finances that trying to build anything for the future while meeting monthly rental costs is like trying to run a bath with the plug out.”
Renters are also earning less on average, with a household income of £30,294, compared to £56,188 for mortgaged households. Zoopla’s recent data shows that rents have risen 10% over the last year and now account for 28% of pre-tax earnings.
This has implications for long-term financial planning. Only 18% of renters are on track for a moderate retirement income, far behind the 54% of mortgage holders. “It means the financial resilience of renters is being washed down the plughole,” said Coles.
Coles advises those struggling with financial resilience to first pay down expensive debts to waste less income on interest payments. She then recommends checking what income protection and sick pay are available through your employer. “This will mean you’re wasting less of your income on interest payments, so should increasingly be able to find the money to boost your resilience in other areas,” Coles stated.
Emergency savings should also be a priority. Coles suggests keeping 3-6 months’ worth of essential expenses in an easy-access savings account. “Even if you can only put away a small sum towards this each month, you’ll be grateful for whatever you’ve managed to save if you’re hit by the unexpected,” she said.
Lastly, Coles emphasises the importance of not neglecting pension contributions. She advises using a pension calculator to assess whether you’re on track for the retirement income you need.
For renters who also aspire to homeownership, the challenge is even more daunting. Coles suggests considering a Lifetime ISA, allowing contributions of up to £4,000 a year with a 25% government bonus. However, she warns that a 25% penalty applies for withdrawals for any other purpose.
