Families living in private rented accommodation are more exposed to the current economic shock than homeowners, and could face big rent shortfalls if they lose their jobs despite welcome government support, according to the Resolution Foundation’s latest Housing Outlook published today (Thursday).
The Housing Outlook examines the impact of the current economic shock on families across different housing tenures, how this shock differs from previous downturns, and the support available to them.
The report notes that renters – and particularly social housing tenants – are far more likely to be directly affected by the current crisis than homeowners.
Four in five social housing tenants either work in sectors directly affected by the lockdown (such as hospitality, travel and non-food retail), are unable to work from home, or have caring responsibilities for school-age children. Only half of homeowners face any of these situations.
The Housing Outlook says that, overall, homeowners are relatively well protected against big income shocks compared to previous recessions. They can request a three-month mortgage holiday, and are already benefitting from record low interest rates.
While many households may be fearful of falling house prices, they are less likely to find themselves in negative equity than in previous recessions – the upside of mortgages being issued with lower average loan-to-value ratios (LTV) in recent years (down from 90 per cent in 2007 to 84 per cent in 2018).
New owners with high LTVs however could still find themselves in big trouble should they lose their jobs, says the Foundation.
In contrast, private renters are far more exposed to housing stress if their incomes fall. They already face the highest housing costs as a share of their income (31 per cent, compared to 13 for homeowners) and private landlords have no obligation to offer them rent holidays.
Faced with these growing housing pressures, the government has stepped in to boost Housing Benefit (HB) by increasing the Local Housing Allowance (LHA) to 30 per cent of typical local rents.
This welcome move – costing around £1 billion a year – will help many private renters with a greater share of their housing costs. However, even with this additional support, many will still face significant shortfall in their housing costs should they lose their jobs.
The Housing Outlook notes that a family living in a two-bedroom property in Hammersmith and Fulham with typical local rents will have to find an additional £468 a month on top of their HB to cover their rent.
Even in less expensive parts of the country like Salford, they would still need to find an additional £109 a month to cover their rent.
Private renters could rapidly build up considerable rent arrears in this situation, at which point they are entitled to just three months’ notice from their landlord to vacate in England and Wales (or six months in Scotland).
The Foundation adds that the Government’s welcome boost to Housing Benefit also risks being undermined by pushing more families above the benefit cap, which restricts total benefits paid to couples and or single parents to £20,000 per year, and to £13,400 for single people without children (or 23,000 and £15,410 respectively for those living in Greater London).
The Foundation notes that out-of-work couples with two children living in a three-bedroom home priced at the 30th percentile of local rents will now fall foul of the cap in two-thirds of areas across England and Wales.
Since a key motivation for the benefit cap was to encourage people into work – which is less practical in a period of rapidly rising unemployment – the Foundation says the Government should suspend the benefit cap.
Otherwise it risks hitting the living standards of low-income households who have lost jobs through no fault of their own.
Lindsay Judge, Principal Research and Policy Analyst at the Resolution Foundation, said: “The current economic crisis is having a profound effect on family incomes, particularly when people lose their jobs.
“With housing costs often being the single biggest fixed expenditure for families, the ongoing crisis will cause housing pressures to mount as people struggle to pay their bills.
“While many homeowners are relatively well-protected in the current crisis via low interest rates and mortgage holiday options, private renters are exposed to rent arrears and even evictions should they lose their jobs.
“The Government has announced welcome support to renters with a £1 billion boost to Housing Benefit. But this help risks being undermined by the benefit cap, which will leave many families with a shortfall in support.
“The Government can help address private renters’ housing pressures by suspending the benefit cap, and extending the grace period landlords must give tenants building up arrears before they can be given notice to leave.”