Renters tend to be less financially resilient than other households. Many are facing material financial pressures. This may pose financial stability risks via sharp spending cuts or credit defaults but is unlikely to test UK banks severely.
The financial pressures facing renters are relevant for the Financial Policy Committee’s objectives.
Alongside other cost of living pressures, many renters are bearing increasing housing costs as landlords pass on higher mortgage and regulatory costs. While renters do not hold mortgage debt, they account for about a third of total household expenditure and hold sizable amounts of unsecured debt – including about 30% of persistent credit card debt.footnote [1] From a financial stability perspective, renters could pose risks if they cut spending sharply or default on their financial obligations.
Footnotes
- Notes: The chart shows the distribution of mortgagors’ and renters’ spending on housing costs, as a share of income. These measures respectively take rent and mortgage costs (including principal repayment), divided by total gross household income. For mortgagors, note that this measure does not capture other housing costs related to ownership, such as maintenance and building insurance.
- Source: NMG survey 2023 H1.
Compared with other households, many renters already have less of a ‘buffer’ to fall back on in the face of sharp rises in costs or hits to their income.
Renters tend to spend a greater share of their income on housing (Figure 1) and have lower incomes and savings to draw on than other households (Table A). In 2023 H1 more than a quarter of renters reported having no savings, and half reported having less than three months’ worth of rent in savings.footnote [2] Renters were less than half as likely to feel they had enough money set aside for emergencies compared to outright owners, and a third less likely than mortgagors.
Table A: Measures of financial resilience across housing tenures (per cent)
| Measure | Renters | Mortgagors | Outright owners |
|---|---|---|---|
| Proportion who feel they have enough money set aside for emergencies | 38 | 57 | 87 |
| Savings (net percentage balance) (a) | 1 | 5 | 15 |
| Proportion who expect to be unable to save over next 12 months | 56 | 40 | 38 |
| Proportion borrowing more money or using more credit now, relative to a year ago | 31 | 25 | 9 |
| Median income (£) | 24,000 | 52,500 | 36,300 |
| Median cash savings (£) (b) | 750 | 5,500 | 40,000 |
Footnotes
- Sources: NMG survey 2023 H1 and ONS Opinions and Lifestyle Survey 2022 Q4.
- (a) Net percentage balances are calculated as the percentage of households that reported an increase in savings over the past 12 months minus the percentage of households that reported a decrease in savings. A negative net balance implies that more people reported falls in savings than rises.
- (b) Cash savings include bank/building society accounts or bonds, cash ISAs, and NS&I accounts or bonds. They do not include pensions or investments where returns are linked to stock market performance.
And this gap looks likely to widen.
Both mortgagors and renters are facing higher living costs and interest rates, whether directly or indirectly through rental inflation. But renters have a weaker outlook for saving. Renters were the least likely tenure group to report increasing their savings over the past year, were the most likely to be borrowing more than a year ago, and over half of renters expected to be unable to save over the next year (Table A).
Increasing debt alongside low and falling savings would make renters less resilient to future shocks, increasing financial stability risks.
Faced with cost pressures from housing alongside rapidly rising prices on essentials like food, some renters are likely to save even less or borrow more – eroding their financial ‘buffers’. They would also be more exposed to tightening financial conditions, and debt repayments would take up a bigger share of their incomes. Higher debt and lower savings would make renters more likely to face hard financial choices in the future – like defaulting or cutting spending – which could trigger or worsen a wider economic downturn.
However, banks are unlikely to be severely affected if renters come under further stress. Banks do not have outsized exposures to renters. And the results of the 2022/23 stress test show that the major UK banks are resilient to a severe stress scenario.
This post was prepared with the help of Elspeth Hughes, James Waddell, Gabija Zemaityte, Gerry Gunner and Maddie Cottell.
This analysis was presented to the Financial Policy Committee in June 2023.
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