Earlier this month, the government’s energy regulator Ofgem announced a record 54 percent increase to the energy bill price cap. Combined with the consumer price index (CPI) measure of inflation hitting a 30-year high of 5.5 percent in January – a figure that’s expected to reach eight percent in April – the pressure on household finances is reaching a boiling point.
For the 4.5 million households in the UK’s private rented sector recorded by official figures, around one-fifth of the country, these cost of living increases will be particularly worrying.
According to the Intermediary Mortgage Lenders Association (IMLA), across the UK on an average month-to-month basis, living costs are 25 percent lower for homeowners than for those renting. This discrepancy ranges from 20 percent in the southeast, to a painful 43 percent in Scotland. And of the one in 10 Britons who reported that they are struggling financially, a staggering 83 percent are renters.
Meanwhile, figures from the IMLA also show that as a percentage of income, mortgage interest and capital repayments reached a record low in 2020, averaging 16.7 percent. Yet homeowners are of course still not immune to price rises, or economic uncertainty. Lettings platform Goodlord reports that the number of landlords asking for guarantors has risen 36 percent in four years, creating a vicious cycle in which property owners seeking protection from rent arrears puts renters in an even more precarious financial position.
Those in the private rented sector are facing a perfect storm of spiralling costs, while the prospect of becoming a homeowner – a group who are comparatively better able to absorb price rises – is increasingly difficult.
There is, however, a solution: rethink the way we approach rental deposits. For many, particularly those living in comparatively expensive cities such as London, five weeks’ rent is an enormous sum. A total of £4.5 billion is currently squirrelled away in deposits, according to figures from the Tenancy Deposit Scheme.
Having access to these funds would prove invaluable at a time when, according to the housing charity Shelter, a quarter of renters cannot heat their homes warm in winter. Equally, not having to stump up the lump sum for a deposit would make the process of moving home much less of a financial strain.
Furthermore, the financial technology infrastructure is already in place to support a deposit-free approach. Payment technologies, such as flatfair, allow for tenants to pay a one-off membership fee instead of a full deposit, while guaranteeing the same protections that landlords and tenants have in the traditional deposit model: any charges and dispute resolution are decided at the end of the tenancy.
The government is committed to two particular issues of relevance: tackling the cost of living crisis, and unlocking homeownership for ‘generation rent’. Granting official government approval to deposit alternatives and holding them on the same standing as traditional schemes would go a long way to tackling both issues.
A fairer, more transparent and more affordable renting system is precisely what the country’s 13 million private tenants need in these tough times.
*Gary Wright is the co-chief executive officer of flatfair