Rising rents squeeze those hoping to buy their own home

• Advertised rents reach record high, according to data from Rightmove (under embargo until 00:01 on 5 October)
• Average rent of almost £15,500 a year could take up more than half of the average person’s take home pay in the UK*
• Those hoping to get out of renting and into home-ownership could look to Lifetime ISAs (LISAs) to boost their deposit

Laura Suter, head of personal finance at AJ Bell, comments:

“Younger people have had their finances squeezed by the cost-of-living crisis and now soaring rents are pushing many to the limits of their income. Anyone who is renting won’t be surprised to hear that rents have hit another record high.

“With average rents at almost £15,500 a year, that means they are taking up more than half of the average person’s take home pay in the UK*. But we know that many of those renting are on below-average earnings, meaning that for some it will take a far bigger chunk out of their monthly income.

“Many renters will be forced to borrow money from family and friends to make ends meet each month, while others will be turning to debt to pay essential bills or rent. On top of this, the squeeze on their finances will harm their long-term ability to save – whether for a house deposit or for other needs. For many getting on the housing ladder without the help of the Bank of Mum and Dad will feel like a pipe dream.

“For those that aspire to get out of renting and own their own home, rising rents make that journey much harder. So it is really important to make the most of any savings you are able to set aside. Accounts such as the LISA can help to boost an individual’s savings pot for a house deposit, even if they can only currently afford to save small amounts each month. The government’s 25% bonus on money paid in can help to reach the deposit savings goal sooner.

“The most recent government figures show that the average first time buyer using a LISA took £13,200 from their account, meaning they may have benefited from a bonus of over £2,500, illustrating how valuable LISAs can be. Unfortunately, with living costs spiralling and some savers feeling that home ownership is becoming impossible, some people have been forced to dip into their savings pot earlier than planned. It means they’ve incurred exit penalties on those withdrawals, and we continue to urge policymakers to cut the exit penalty down to 20% so that savers only give up the government bonus and not their own savings cash.”

 Source: HMRC/AJ Bell, 2021/22 tax year

Source: HMRC/AJ Bell

*Based on average annual wage of £34,528, which is £27,501 after tax, assuming no student loan repayments, pension contributions or other deductions.