Protecting The Renter Market
Renting has been on the rise for many years now and indications predict that this trend is set to continue. In fact, over the past decade, the UK rental market has doubled. One of the largest factors in this rise has been the increase in the cost of a property relative to the average salary.
The sad fact is that renters are generally in a more vunerable position as opposed to their home owning counterparts. If a home owner has the worst occur and finds themselves in financial distress, they can approach their mortgage lender for help and will often receive a sympathetic response. Some lenders offer ‘mortgage payment holidays’ of between 6 to 12 months dependent on certain criteria, whereas a landlord is less likely to be so flexible around payment.
Additionally, the average renter spends double the amount that home owners pay of their income on housing costs. This creates a greater need for income protection as there is less financial resilience.
The trouble is that numerous recent surveys report that as little as 7% - 18% of UK renters believe they have some form of income protection in place, meaning that they are at much higher risk of not being able to cover their rent payments, should they become ill or injured and were unable to work.
A key reason for this is that renters do not have the natural ‘trigger’ of a mortgage application process to raise the issue of the vital safety net offered by income protection policies should the worst happen. Renters also stated that experiencing an income shock was a bigger concern for them than being made redundant, or a landlord terminating their tenancy without warning.
Some of the key facts about renters and the rental market include:
- It is estimated that by 2025, 50% of adults under the age of 40 are expected to be renting as opposed to a homeowner
- Rents in the UK market are expected to increase by 15% over the next five years
- At present, 38% of renters have dependent children
- The current average renting period is 6 years
- Renters spend 40% of their income on housing costs, double what home owners pay
The good news is that insurance companies are starting to recognise that the renting population should no longer be considered as ‘homeowners in waiting’. In fact, the average renter has now been doing so for over 10 years. For many people, the reality is that renting is becoming a long term if not permanent housing solution.
The study also showed that renters are now more likely to be older (over a third are aged over 45) with families and typical responsibilities, so it is understandable that they are worried about being unable to pay rent due to illness or inability to work. Government figures say the chances of a long-term sickness are around 3 per cent, but this risk rises further with age, so is of particular concern for the growing number of renters who are 45 or over.
In the same survey, the participants were asked how they would cover the cost of their rent payments if they were suddenly unable to work due to ill health or injury. The highest scoring reply to this situation was to rely on savings, with 33% of respondents choosing this response. However, with 1 in 3 people in the UK having less that £1,500 in savings available, how realistic is this approach? This figure works out at around 6 weeks worth of average rent without any other costs included.
Mark Jones, Product Director for UK Protection at Legal & General stated that ‘People who rent have similar protection needs to those who purchase their accommodation, but fewer of them purchase cover’. He also admitted that previously; ‘the products available in the market didn’t adequately consider these consumers’ specific needs’. So affordable, flexible income protection is now being designed with renters in mind
Many renters are simply not aware that the same types of insurance and protection used commonly by mortgage owners are available and just as relevant to renters. Income protection and critical illness insurance can provide cover for lost earnings due to injury and illness, while life insurance is invaluable for renters with families.
The cost of these types of insurance and protection can also be more affordable than a lot of people seem to think. The study showed that monthly premiums could be as low as £17 per month for a 40-year old non-smoker that would pay out a monthly income of £1,167 for a year.
The benefits of such policies can be tailored to offer the protection that fits the renter's situation, including; rental income protection, rental life cover or rental life cover with critical illness. Greater flexibility has also been incorporated into these plans to meet current requirements and budgets with the ability to increase levels of cover should rent costs increase in the future.
If you would like to understand more about the various protection packages available for the rental market, or if you have any questions, please do not hesitate to contact Mortgage Solutions today on 028 9182 8255. Alternatively, book a meeting directly with your local Mortgage Solutions branch here. We are always happy to help!