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Are people being priced off the rental ladder?

Rental deposits could account for up to 120% of monthly salaries by 2026 according to a report by the Centre for Economic and Business Research (Cebr) for money.co.uk.

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  • In just ten years the average rental deposit¹ is estimated to reach £1,111; this equates to 70% of the average Brit's monthly income, at £1,576. In London, deposits are projected to rise to £2,733, sucking up 120%² of one month's average salary³ at £2,281

  • Across the UK today, the deposit required by many landlords is four weeks' worth of rent. Based on current trends, in ten years' time an estimated 68% of deposits requested by landlords will be equivalent to six weeks' rent

  • The hike in rental deposits far outstrips the estimated increase in monthly rental costs, which are set to rise by over a quarter (28%) to £1,111 by 2026. This eye-watering increase is dwarfed by the whopping 40% deposits are predicted to rocket over the same time period

  • Overall, rental inflation is estimated to outstrip the average increase in monthly salaries across the UK which is projected to grow by an average of just 20%³ over the same period

  • The extent of the problem is vast. By 2026, 7.2 million households in England and Wales are estimated to be privately rented - this is two-thirds (66%) more than in 2014. By 2026, private renters are projected to represent almost a third (30%) of all households

With home ownership projected to be a luxury just over half (54%) the UK population will be able to enjoy by 2026, the rental market could run into overdrive.

In fact, getting on the rental ladder could present similar challenges in terms of cost as buying a home according to new research¹ carried out on behalf of financial comparison website money.co.uk by the Cebr (Centre for Economics and Business Research).

The study reveals that the cost of the average rental deposit is estimated to grow by almost two fifths (40%) by 2026 hitting £1,111. This dwarfs the growth of the average monthly rent which is estimated to increase by an eye-watering 28% over the same period.

Rental deposits will suck up 120% of Londoners' salaries by 2026

In monetary terms, the average rental deposit in Great Britain will cost renters £1,111 in 2026, which is estimated to be 70%² of the average monthly salary³.

However, there are stark variations across the regions. In London, for example, the average rental deposit is predicted to rise to £2,733 by 2026, sucking up 120% of the average monthly salary³ — up from 99% in 2015.

In fact, deposits are predicted to rise sharply across the whole of the South of England. In the South East, the average deposit is estimated to hit £1,469 in 2026, representing over four-fifths (83%) of the average monthly salary at £1,761 — up from 72% in 2015.

In the South West, it's a similar plight, with the average deposit estimated to represent 80% of median monthly earnings (£1,437) by 2026 — up by 14 percentage points from 66% of the average salary in the region in 2015³.

Landlords to demand six weeks' rental deposit

Across GB today, the average rental deposit requested by landlords is four weeks' worth of rent. Based on recent trends, by 2026 an estimated 68% of all deposits requested will be at least six weeks' rent. This means landlords will be demanding a lot more money from tenants before they sign on the dotted line.

By 2026, average monthly rents are set to rise by 28%

By 2026, almost a third (30%) of households in GB are expected to be privately rented, up by 10% from 2014. This "landlords' market" means it's not just deposits that are set to rise sharply over the next ten years.

Our research estimates the average monthly rent is also due to increase by 28% by 2026. Again, this is eight percentage points higher than the increase in average salaries³ over the same period which is set to grow by 20% by 2026.

Rents in London up by 39% by 2026, while in the South East they are estimated to grow by 34%

The largest increase in rents between 2015 and 2026 is estimated to occur in London, with close to 39% growth.

Other regions with high estimated growth are the South West and South East, where rents are predicted to grow by 32% and 34% respectively over the same period. The lowest increase in average rent is estimated to be in Yorkshire and the Humber, with a 17% price hike between 2015 and 2026.

Monthly salary growth will not keep pace with the rental market

Between 2015 and 2026, the average monthly salary³ across GB and is predicted to rise by an average of 20% or £267, to hit £1,576.

This increase is lower than the estimated increase in both monthly rental costs and rental deposits, which could mean many individuals will find the cost of renting just as unaffordable as buying. This is despite the fact the financial outlay required to rent is significantly lower than getting on the property ladder.

Estimated deposit-to-earnings ratios in 2026 across the regions

Updated 12 May 2020
RegionGross median monthly earningsAverage rental depositRental deposit as % of monthly earnings
North East£1,456£79555%
North West£1,453£80856%
Yorkshire & The Humber£1,437£79755%
East Midlands£1,503£84256%
West Midlands£1,454£85759%
South East£1,761£1,46983%
South West£1,437£1,14980%
GB Average£1,576£1,11170%
Source: Centre for Business and Economic Research

Hannah Maundrell, Editor in Chief of money.co.uk, comments

"The rapid rise in deposits as well as rents is a double blow for everyone on the rental ladder. With the forthcoming changes to tax legislation and crack down on buy to let mortgages likely to erode landlords' profits, there's little doubt these costs will be passed onto tenants.

"The current booming property market means deposits are likely to continue shooting upwards in the future, and we could well see six weeks' worth of rent extended to eight.

"Tenants are stuck between a rock and a hard place and the situation is only likely to get worse. Many not only face being priced off the property ladder but also the rental ladder too. This could force people to borrow the extra cash they need for a deposit on loans or credit cards, pushing up the cost and creating a perfect storm for a major renting crisis.

"Maybe the bank of mum and dad should prepare itself for another withdrawal? Or, we could see many left with little choice but to live with their parents well into their 40s.

"The Government needs to take action because, without intervention, the spiralling cost of deposits and rent could have a huge economic impact on the UK. Giving renters a lifeline is equally as pressing as helping people buy a house. Taking steps to address this now could be a far easier solution than dealing with the prospect of pricing home hunters off the private rental ladder."

A copy of the full Centre for Economics and Business Research (Cebr) report can be found here. 

Notes to Editors: 1. All research and calculations were carried out by the Centre for Economics and Business Research (Cebr) on behalf of financial comparison website money.co.uk in December 2015.

2. All rental deposit-to-earnings ratios refer to individuals and hence assume single occupancy.

3. All references to monthly salaries are based on median gross monthly earnings and exclude Northern Ireland.

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