London tenants pay out 35% of income on rent

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Housing costs accounted for 35 per cent of the income of tenants in London in the year to March 2022, the highest in the country, according to official data, as concerns grow about the impact of the recent record rent rises on UK households.

The figure for the capital, equivalent to £1,450 per month, was the highest in the country, according to figures released on Monday by the Office for National Statistics for the year to March 2022.

It was also the only region with a rent-to-income ratio above 30 per cent. Below that threshold the ONS deems an area to “have private rent that is affordable”. The data showed that the ratio rose to 46 per cent in the capital for poorer households.

Private tenants in England spent an average of 26 per cent of their income on rent, based on median household income and median rental costs, in the 12 months to the end of March last year. In Wales, the figure was 23 per cent, while in Northern Ireland it was 25 per cent.

Since then, rents across the country have risen at a record rate, adding to concerns about the pressures on household budgets.

Separate ONS figures released last week showed that on average UK rents increased at an annual rate of 5.7 per cent, with London registering an increase of 6.2 per cent, the highest since the data series for the capital began in January 2006.

“The UK is facing an accommodation affordability crisis, particularly in London with rents eating up an increasingly daunting percentage of income while mortgage affordability is diminishing in the face of rising interest rates,” said Victoria Scholar, head of investment at Interactive Investor, an online investment service.

A regular ONS survey published on Friday found that 43 per cent of respondents found it difficult to afford rent or mortgage payments, up from 30 per cent in October last year.

Martin Beck, chief economic adviser to the EY Item Club, said that wage growth has supported incomes over the past year, but added that “younger people, whose wages have grown relatively slowly in recent years and who are more likely to rent, have experienced a fall in affordability”. 

Rents are rising in part because of an increase in demand as a sharp jump in mortgage costs has made buying a property unaffordable for many, especially first-time buyers. Landlords in turn have passed on their higher borrowing costs to tenants.

Andrew Wishart, economist at Capital Economics, said supply was also being squeezed because “highly leveraged landlords” were being forced to sell some of their properties when they refinanced. He said the poor returns on offer were also putting landlords off.

Tom Bill, head of UK residential research at Knight Frank, said another factor driving up rents was the government’s decision to target landlords with extra red tape and taxes over the past decade because it was “politically expedient”.

Bill said he did not expect the supply and demand mismatch would “end any time soon, which will keep upward pressure on rents in the medium term”.