Rental trap robs Scottish tenants of financial wellness

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A growing number of UK adults are unable to purchase a home, locked out of the housing market by the need for a large deposit and strict lending criteria.

New studies suggest that this has far-reaching effects, leading renters to suffer from poorer levels of financial wellness, according to the first Momentum UK Household Financial Wellness Index, published in March.

The index, commissioned by Momentum UK and conducted by the University of Bristol’s Personal Finance Research Centre, is the first of its kind to look at the overarching financial wellness of the UK.

The study revealed that the financial health of respondents was drastically split between homeowners and non-homeowners with renters suffering due to a lack of assets and an inability to plan effectively for the long term.

Other aspects taken in to consideration included the unemployment rate, savings and security and the ability to avoid deprivation and hardship.

Those with a mortgage average 71/100 index points, and those who own outright average 74/100, where a higher score represents greater financial wellness or the ability to afford expenses and reach goals over a lifetime.

Meanwhile, those in rental accommodation average financial wellness scores of 62/100 for private renters and housing association tenants, and 60/100 points for local authority renters.

Furthermore, the lack of significant difference in score between private renters and those in social housing, indicates that even though they have relatively higher incomes, private renters are being made financially “unwell” by their living situation.

The Office for National Statistics’ Economic Review estimated that renters spend approximately 20 per cent of their income on rent, with this rising to 25 per cent for private renters.

This has risen dramatically from 10 per cent over the last three decades.

These exorbitant costs are also evidenced in the index’s findings which show that renters are half as likely to feel that their income will cover their monthly outgoings.

Renters are also half as likely to feel comfortable with their current standard of living and twice as many renters missed a minimum repayment on a credit card, loan or other debt in the last year.

Renters, as well, are far less prepared to deal with unforeseen money worries.

They are half as likely as homeowners to have funds put away for a rainy day and twice as likely to not be able to meet an unexpected major expense without having to borrow money.

Ferdi Van Heerden, chief executive of Momentum UK said: “The financial hardships being faced by renters are making it impossible for them to build the deposit necessary to get their foot on the property ladder.

“Soon we will see a situation where only those who already own or inherit property will be able to own a home.

“Private renting is on the increase from 6 per cent of the population in 1988 to 16 per cent in 2014.

“By contrast, the prevalence of mortgaged home ownership among under forties is lower than in 1977, when the Right to Buy was introduced to address just such an issue.”

In spite of the fact that renters are just as likely to budget and monitor their day-to-day spending as homeowners, they are far more likely to see their long-term financial prospects suffer due to the effect that renting has on their income.

According to the index, renters are twice as likely to have no savings, insurance or pension products in place.

They are also twice as likely as homeowners to have no provisions in place for their retirement.

The long-term reality of living as a renter has also had an effect on the financial confidence of non-homeowners, prompting fears for both their short and long-term financial futures.

Van Heerden said: “If we do not address the UK’s rental trap, we are effectively creating a lasting social divide between the ‘haves’ and ‘have nots’.

“We cannot simply assume that the current system will resolve this issue and action must be taken to address this.”