As the UK economy faces a period of uncertainty characterised by a cost of living crisis and soaring inflation rates, many individuals and families are experiencing financial strain. The rental industry is heavily impacted by this, as renters spend a third of their household income on rent, which is the highest percentage among all types of tenures.
There is little evidence to suggest this situation will improve, with HomeLet reporting a 9.27% year-on-year increase to rent prices in September, reaching a record high of £1,276.
This is primarily because of increased demand, which is a result of limited housing supply and higher mortgage rates. Analysis from Dataloft shows that 15% of rental transactions are being let out above the asking price due to this demand. For many renters, this leads to reduced affordability and a high risk of being priced out of their new home.
Even those already living in rental properties are not exempt. The Office for National Statistics reported that 45% of renters and homeowners saw increases in their rent or mortgage payments in the past six months. Out of those, 42% found it very or somewhat difficult to afford these payments.
As rental costs continue to rise, so do deposits. The traditional deposit method requires tenants to pay 5 weeks' worth of rent upfront. Therefore, considering the expectation of higher rent payments, it is arguably more important than ever for tenants to prioritise keeping their cash available for necessary expenses during their tenancy.
In October and November of last year, when tenant affordability was less strained and demand was lower, less than a quarter of tenancies opted for deposit alternatives when given the choice between a traditional deposit and an alternative. However, as of October 2023, these figures have increased to nearly 50%, suggesting a growing interest in upfront savings to better manage cash flow in the face of rising living costs.
Ultimately, when it comes to deposits, the focus should not be on imposing one method over another. Instead, agents and landlords should aim to support their tenants by providing a range of options, allowing them to choose what works best for their individual circumstances. Some tenants may prefer to pay a traditional deposit, while others may find it impractical or not their preferred choice to pay a larger 5-week deposit along with their first month's rent.