In recent years we’ve heard a great deal about the rise of ‘Generation Rent’, but what does this trend actually mean for consumers and advisers? As renting becomes more widespread, has the face of the typical renter changed? The picture is certainly more diverse than it used to be.
Home ownership is at its lowest point in 30 years, according to the Resolution Foundation1. The reasons are many but it seems that (just as Margaret Thatcher severed Britain’s dependency on social housing in the eighties), the market crash of 2007 has, at the very least, dented our passion for home ownership. The number of households living in privately rented accommodation has more than doubled since 2001 and this trend is likely to continue2. Getting a mortgage is a more onerous process than it used to be and the deposits required are larger, both of which mean significant sacrifice and commitment. Meanwhile, in the background, average house prices continue to rise. Add a more mobile jobs market to that mix and it’s no wonder many opt to rent.
So what does this mean for advisers? Well, with change comes opportunity – and renters do present a protection opportunity. Admittedly not all of them, but there is undoubtedly a core of fairly affluent renters, some with families, who for whatever reason are choosing to rent. How would they be placed in the event of an interruption to income? Are they likely to be speaking to advisers? Probably not. Some may have gone online or spotted a leaflet in the supermarket that has prompted them to sort out some cover – but as most are taking this action without advice, it’s highly unlikely they’ll have enough of the right cover. In which case, they will probably end up having to rely on the state. What could they expect? As a famous magician once said, ‘Not a lot’.
Welfare reforms have been well documented, and those changes are likely to impact renters who find themselves at the mercy of the state. There are several factors that might impact access to benefits. Firstly, the benefits cap, recently introduced, sets a limit of £20,000 for households outside of London3. Then there’s means testing and the introduction of Universal Credit. Most benefits are now means tested, so if any savings exist then the state will expect people to live on those.
On top of this there is the ‘bedroom tax’ so, for a couple renting a two bedroom property, any housing benefit will be reduced because they technically need only one bedroom. The picture is further complicated by age; if under age 35 they will be given housing support based on the cost of shared accommodation, so they will receive only the price of renting a room, not a property. Furthermore, the rates for support are set at the 30th percentile, which means they are based on below average rental costs in any area4.
In short, anyone renting who suffers an interruption to income is likely to struggle to pay their rent. This can be particularly problematic if the renter is tied in to a lease agreement.
No-one likes to give up their independence to move back in with their parents, and nor is it always possible. These are the kind of issues that today’s Generation Rent need to be thinking about, so having this conversation with them is a real opportunity for creating new clients. And for those who go on to have aspirations to buy, well… they’ll know where to come when they want expert advice on that.
Source: 1 http://www.resolutionfoundation.org/media/press-releases/home-ownership-struggle-hits-coronation-street/, 2 Price Waterhouse Cooper UK Economic Outlook July 2015, 3 https://www.gov.uk/benefit-cap/benefit-cap-amounts, 4 https://www.gov.uk/government/publications/understanding-local-housing-allowances-rates-broad-rental-market-areas