Rental costs to increase in 2022
Tenants will see an increase in rent prices of an extra £4.6bn in 2022 according to the Hamptons Monthly Lettings Index. This rise, attributed to the ongoing cost of living crisis, will mean that an average of 54% of tenanted household income will be spent on rent and bills. In 2021 this figure stood at 52%. Record-breaking rental growth in 2021 ensured that renters were paying 42% of their post-tax earnings on rent alone. Hamptons expect rental growth to slow to a figure of around 2.5% towards the end of 2022, but tenants will still feel the pinch due to rising energy prices and inflation which could see tenants’ household bills increase by 15%, vastly outpacing earnings growth which is expected to rise to 3.75%.
Head of research at Hamptons, Aneisha Beveridge, says that rising energy prices are likely to be where many tenants’ income is being spent: “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. “Rental growth is slowing as affordability pressures bite and we expect rents across Great Britain to end the year 2.5% up on 2021, down from 7% today. However, even if household incomes rise by the forecast 3.75%, it won’t be enough to fully offset rising utility bills and tenants, in particular, will feel the pinch.” It is expected that tenants in the South-East will pay the most – last year, 64% of average household earnings were spent on rent and bills – this is anticipated to rise to 65% by the end of 2022. But it is tenants in the East-Midlands who are likely to be hit the hardest; households in this area currently spend a higher ratio of their earnings on bills – 16%, meaning that overall rent and bills could increase to a whopping 58% of post-tax earnings by the end of 2022.
The average cost of a rental property rose in February by 6.7% which is less than the growth seen in January of 8%, and the peak in July 2021 of 8.7%. Beveridge adds: “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.”