Tenants face a record squeeze on their finances this year as rising energy costs add to steep rent increases, new research shows.
Figures from estate agent Hamptons reveal that the average bill for energy and rent is now expected to rise to almost £18,000 a year.
The typical household across Britain spent 42 per cent of their post-tax income, or £13,560, on rent in 2021, the highest proportion since Hamptons began recording the figures in 2010.
When other bills such as gas, electricity, council tax, broadband and tv licence are included, the average household spent more than half (52 per cent) of their income on rent and bills for a total of £16,906.
Rising costs: Tenants are looking to pay nearly £18,000 on average in rent and bills this year
But this is before the looming hike in energy bills, which are set to go up by 54 per cent from April.
Ofgem announced the price cap for an average household will rise from £1,277 to £1,971 from 1 April to the end of September.
The cap will then be revised, with some analysts expecting another 47 per cent rise in October that would take it to £2,900.
Even though rental price growth is expected to slow down further from last summer’s peak, this will be offset by the massive rise in energy bills.
Hamptons estimates that by the end of this year, the average household in a rented property will spend a record 54 per cent of their post-tax income on rent and household bills.
This means an extra £1,008 each year, with the total amount they spend on rent and bills set to rise to £17,914 per household by the end of 2022.
The average household set to spend a record 54% of their income on rent and household bills
Rental growth accelerated quickly last year, hitting a peak of 8.7 per cent in July, but it slowed for the sixth consecutive month in February.
Last month, the average cost of a newly let property rose 6.7 per cent compared to a year ago, down from 7 per cent in January but still the strongest February since 2013.
Hamptons forecast rental growth to slow further to 2.5 per cent by the end of 2022, but overall household bills are set to go up by 15 per cent, outpacing wages, which are expected to rise by 3.7 per cent.
Aneisha Beveridge, head of research at Hamptons, said: ‘Financial pressures are raining down on households, but while last year it was rental growth that ate into tenants’ incomes, this year it’s more likely to be energy costs.’
She added: ‘Rent and bills typically tend to get paid first, with whatever money is left over being saved or spent on other things.
‘With more income tied up in essentials, it’s likely that discretionary spending is set to fall later this year which is bad news for the wider economy. And as mortgage rates creep up, homeowners are likely to face similar pressures too.’
How do different regions fare?
Tenants in the South East spend the highest proportion of their post-tax income on rent and bills – 64 per cent in 2021, with that set to rise to 65 per cent this year.
It is also the only region where rent makes up more than half of households’ income, or 52 per cent, leaving then with the smallest disposable income of all regions.
But those in the East Midlands are expected to be the worst affected, as they spend the highest share of post-tax income bills – 16 per cent – compared to all other regions.
This chart shows how much households spent on rent and bills last year…
… and this how much rents have increased last month in different regions
Londoners will see less of an impact as household bills in the capital only make up 6 per cent of income.
Hamptons said this is partly because incomes tend to be higher in the capital, but also because properties tend to be a little smaller, newer and therefore better insulated, thereby lowering bills.
However, the high value of property means that London tenants still spend £23,380 on rent each year, which equates to 48 per cent of their post-tax income.
Overall, London tenants are set to spend 55 per cent of their post-tax income on rent and bills in 2022, slightly up from 54 per cent in 2021 and 49 per cent a decade ago.
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