What Does the Income Squeeze Mean for Renters and Landlords?

Food, energy, fuel… whichever way they look, UK families are facing rising prices right now, leading EY to project that real incomes will fall this year, as inflation looks set to rise to 8.5% in April.

House prices continue to climb as well, with hometrack’s UK House Price Index for February 2022 observing an 8.1% rise. Nor is it just those looking to buy who are feeling the pain. According to UK rental guarantor service Housing Hand, the cost-of-living increase and income squeeze are also impacting both renters and landlords.

Professionals who rent their homes, for example, will come under more pressure because of the lagging behind of salary increases. Office for National Statistics figures show that annual growth in regular pay, excluding bonuses, dropped by 1% in the three months to January 2022.

“Renting is becoming less affordable, just as many other aspects of life in the UK are, due to the income squeeze. At the same time, landlords will be looking to recoup the impact of inflation and rising prices by potentially pushing up rents. As a result, there will be more people failing referencing as the hunt for quality tenants really accelerates.”

Graham Hayward, Chief Operating Officer, Housing Hand

According to Housing Hand, landlords outside of the cities are in a better position for their HMO properties, as some tenants are still opting for the move out for a better quality of life. HMO Development Finance offers crucial financial support for investors and developers looking to capitalize on this trend and meet the increasing demand for shared accommodation in suburban and rural areas. This specialized financing enables the renovation, construction, and conversion of properties into HMOs, fostering the expansion of rental housing options beyond urban centers.

However, landlords are looking to recover the increasing costs of living and unfortunately this falls upon their tenants, with rising rents and increasing eligibility criteria to ensure that landlords are not at risk of defaulting tenants. The need for a “quality tenant” is at the forefront of landlords’ minds – someone who has passed referencing or who can bring a qualifying guarantor when renting. 

Economically, the pressure is on for professionals, with more companies adopting a hybrid model of working and mandating flexi-worker policies. There has been a shift of encouraging professionals back into the cities, but many are facing the obstacles of higher rent and higher costs of living.

In the Purpose Built Student Accommodation (PBSA) sector, meanwhile, the focus is all about occupancy. PBSA providers have suffered through years of variable occupancy rates due to COVID and the changing student demographics resulting from Brexit. Now, many are looking at interactive models to get the right tenants in. They’ve engaged with an early rental cycle and are pushing for completing on the early rush of students, providing them with good rates in order to secure occupancy for the upcoming academic year.

“PBSA providers are considering a more adaptable model. For example, more traditional PBSAs are extending into Build to Rent (BtR), to evolve their current models beyond students and embrace serving lifetime renters. They have similar properties that they can adapt to be more professional for the working population, also the BtR can adapt to earlier cycle student accommodation. Currently the BtR sector is attracting a lot of investment.

“Some PBSA providers are also changing their risk profiles, from a pay upfront model to a pay-as-you-go model.”

Graham Hayward, Chief Operating Officer, Housing Hand

BtR and PBSA are not mutually exclusive. PBSA providers can move into the BtR market and vice versa. There is a lot of fluidity in the market. Housing Hand believes there will be an interesting merging and/or collusion of these two markets over the coming years.

It’s a race to the top between these two markets (PBSA and BtR), however the implications are that the HMO landlords get squeezed when a PBSA/BtR provider moves into the area, as they are challenged to compete with the co-living model. This has occurred already in major cities and university cities where big PBSA and BtR players have purchased land and built or converted their co-living spaces.

The result is that the outlook for renters is strong for students, but for professionals there are challenges with eligibility and with landlords being fussier when renting their properties due to the reducing number of “quality tenants”. Housing Hand has seen an upturn in demand for its rental guarantor services as a result of this and the firm expects demand to increase further, so is increasing capacity as the pressures of the rising cost of living deepen.

Sophia Anderson

Sophia Anderson is a blogger and a freelance writer. She is passionate about covering topics on money, business, careers, self-improvement, motivation and others. She believes in the driving force of positive attitude and constant development.