Income warning for millions of renters

Legal & General suggested that with a significant proportion of the workforce living in rented accommodation, it was vital that they protected their income through policies such as income protection, in case they became too ill to work, or had an accident that saw them unable to work for a protracted period.

Craig Brown, director for intermediary insurance at Legal & General, said: "Our ‘Deadline to Breadline’ 2020 research, which looks at how long people believe they could survive financially if they lost their income, revealed renters are especially vulnerable to any financial instability.

"It found that the average private renter thinks they could last for 30 days if they lost their income, but in reality they are only three days from the ‘breadline’ compared to 23 days for the average mortgage holder."

The warning came as the latest research by estate and lettings agent Barrows and Forrester revealed an alarming increase in the level of rental arrears during the Covid-19 pandemic.

During wave one of the pandemic restrictions, figures from the ONS estimated 7 per cent of the 4.8m private rented households in England were at least one month behind on their rent payments - equating to some 335,860 homes.

But during wave two of the pandemic, the number of households in at least one month’s arrears rose to 9 per cent, which means wave two saw some 431,820 private rental households fall into arrears, to the tune or more than £365.3m.

Should a third wave materialise, we will no doubt see yet another increase in the total amount of rental arrears.Forrester

The average cost of renting was also higher during wave two than during wave one, rising from £826 to £846 per month, while inflation has risen steadily, feeding through to higher prices at the checkout.

Add to this the rising cost of energy - which has already seen the UK's sixth-largest energy supplier, Bulb, seeking a bailout in order to remain in business, and it is clear the pandemic is having a material, financial effect on Britain's renters.

Should renters lose their employment and not have any accident, sickness and unemployment cover, the financial impact could hit hard, although - as reported by FTAdviser last year - many insurers offering ASU pulled the 'unemployment' element from policies amid fears the pandemic would lead to mass redundancies. 

According to Brown, the problem would be compounded should the individual become sick and unable to pay their bills. 

He added: "Mortgage holders are seven times more likely to protect their income than renters, with only 2 per cent of renters having an income protection policy compared to 14 per cent of those with a mortgage.

"So renters need to be protected and there is an under-served market out there for advisers to address.”

Shaking the market

James Forrester, managing director of Barrows and Forrester, commented: "The first two waves of the pandemic shook the rental market to the core.

"All of a sudden, many tenants who had no previous problems with paying rent on time found themselves out of work, or at least having their hours significantly cut as employers tried desperately to find a route to survival during an unprecedented moment in modern history."

This left hundreds of thousands of people unable to afford steady rent payments and so the government stepped in to protect them, making it almost impossible for landlords to evict them during the height of the pandemic.

But this has also left landlords out of pocket, especially towards the end of 2020 when there was a 2 per cent rise in the number of private rental households in arrears.

Forrester warned: "We are starting to see normality return to the rental market but this will do little to comfort those landlords who are now severely out of pocket and should a third wave materialise, we will no doubt see yet another increase in the total amount of rental arrears.”

As detailed in the table, below, the number of renters in arrears during the second wave may not have been big - just 9 per cent of the total UK renter population - but the cost to landlords was immense, coming in at more than £365m in total in lost rental income.

When analysing the England data on a closer regional level, the data revealed that four English regions saw arrears grow by more than the national average between wave one and wave two.

The largest arrears growth was seen in the East Midlands, where between the first two waves of the pandemic, rent arrears increased by more than 36 per cent.

In both the South West and the East, arrears increased by 35.6 per cent, and in the South East, they grew by 35 per cent.

The smallest regional increase between each wave was in London where total arrears grew by just over 24 per cent, but due to London’s very high rent prices, this 24 per cent growth accounted for almost £28.5m, by far the largest sum in England.

According to Forrester: "The country must now wait and see how rent arrears will be affected by a potential third wave of the Covid-19 pandemic which most analysts predict will occur between September and October 2021."

Last year, FTAdviser predicted the UK's renters could end up in Covid-19's firing line, with rising levels of economic uncertainty leading to mental ill health, anxiety and long-term sickness absence from work.

According to the Department of Health and Social Care’s 2019 workplace report, more than 100,000 Britons leave work following a spell of long-term sickness absence each year.

In any economic environment, that is a high figure, but in a pandemic, with the recognised additional stresses of job loss, anxiety, mental ill health and risk to health, this should serve as an alarm bell to advisers to make sure their clients have appropriate protection in place.

simoney.kyriakou@ft.com