⚠️This Dangerous Duo is Suddenly Squeezing Renters and what that Means for all first-time buyers

High inflation and high interest rates are a renter’s nightmare. Right now inflation is above 10%. It’s being as stubborn as can be. This means that when renters have to renew they’ll find their landlord will most probably be raising their rent. How exciting.

And let’s be real – our wages are not exactly keeping up. Unless you’re gutsy enough to ask your boss for a 10%+ pay rise (you totally deserve it btw!) you’re literally losing money. Psst: if you’re feeling the pinch, read here 5 ways you can start making money now.

And if your rent is going up while your wages are going down in real value (once inflation is added into the mix) then you’re gonna have cut back in other areas. Sadly you can’t just whip up a wad of notes outa nowhere. 

Too much money is going towards rent

Let’s look at the classic 50-30-20 budgeting rule where 50% go to basics, 30% goes to extras and 20% goes to saving & investing. Read here how to add some bling to your budgeting – it doesn’t have to be boring!

The 50% bucket for our basics includes everything from rent to food to fuel. But the problem is that rent is taking up too much room. It’s eating into everything else. If there even is stuff leftover! The Official for National Statistics (ONS) says as a general rule of thumb your rent should not be more than 30% of your salary!

A bright red "house for rent" sign outside a house
Photo by Ivan Samkov on Pexels.com

Now, the average % of salary that goes to rent is 37% which is still higher than the recommended. Just saying. But we all know that when it comes to London, rents are on steroids. Here in London renters are having to spend on average of 52% of their salary on rent! This is bonkers.

High inflation + high interest rates = double trouble!

So yeah, inflation is a nightmare for renters. But that’s not all they’re battling against! Interest rates are also rising. They’re the highest they’ve been since pre ‘08. Central bankers have brought interest rates from ground zero (aka partyland) to well above 4%.

They’re even thinking about bringing them up to 5%!! Madness. The problem with high interest rates is that while they slowly bring house prices down (and I say slowly because things move 1000X slower in property land than stock markets since they’re so slow to buy + sell) they don’t exactly help with getting on the ladder.

RICS survey has found that unless changes are made to the buy-to-let market, tenants could see their rents rise by as much 15% by 2023! Across the UK, the average rent price has already increased by 10.8% since last Dec. In London rents have gone up by 14.8% to £2,011. That’s basically most of my paycheck. OUCH. 

Ideally homebuyers want 2 things: affordable(ish) prices + low(ish) mortgage rates. 

What’s the point in being able to “technically” afford a house when you can’t afford to service it! Most first-time buyers put down low deposits just so they can get on the ladder. You can even put down as little as 5% of the property value.

a couple with cardboard boxes in front of them unpacking their place
Photo by Karolina Grabowska on Pexels.com

But this runs the risk of going into ‘negative equity’ – where you’re basically paying off a mortgage on a house that’s worth less than when you bought it. Having a smaller mortgage (for ex 25% deposit) helps you secure those better rates but not everyone can manage it. 

And now that interest rates have gone up like crazy it means mortgage rates are going berserk. And this is what’s pricing out first-time buyers. Again. It’s just too expensive to service a mortgage at say 6%.

This means banks are gonna be stress-testing buyers to make sure they can afford it. And as the economy starts slowing down and people lose their jobs – the classic symptom – banks are gonna be more cautious. 

Why are rents really rising? 

Landlords aren’t all rich guys with oodles and oodles of cash on hand. They’re running a biz. Rental income – expenses = profit. The problemo is they’re facing massive hikes in energy bills thanks to the cost-of-living crisis as well as rising mortgage rates!

So the “expense” bit of the equation is going up and up. So they’re having to pass on these costs by pushing rents up. Otherwise, they’ll make a loss on their investment. 

That’s not all. Many high street banks have also removed their BTL mortgage products which means landlords can’t get finance for new investments which means rental stock will keep on shrinking while tenant demand is still there. 

Demand for rental properties remains high

Real estate agents are now requesting CVs to vet tenants! Someone with a well-paid job in the city is far more likely to scoop the property than someone in a lower-paid role that’s more sensitive to the economy. Regardless of whether they’ve got the cash to afford it.

Another thing I heard was that many are now having property viewings – and charging for it! When there’s so few properties available to rent with high demand, only one thing happens = prices go up! It’s the nature of economics! You can’t fight it. 

I was looking for a property to rent in a small area outside London and I only found 7!! This is no joke. My friends who are moving in with their partners are struggling to find somewhere affordable to live so they’re a) having to compromise A LOT b) offer over-the-odds or c) move outside the city – which is what many are now having to do. 

The young are priced out from their own cities! My friend is considering going back to Nottingham where he’s from and commute into the office 1x per week. It’s just too pricey here. Most of our wages are going to rent. It’s just miserable. 

Couple dangling a pair of house keys in front of them looking elated
Photo by Kindel Media on Pexels.com

I know someone who rented out a 2-bed apartment for £1,600 p/m almost 2yrs ago. That was the going rate. They’re now receiving offers in excess of £2,500 p/m. This is nuts. In other places rents have gone up by 30/40%! 

Houses are a basic necessity. Sorry ,accommodation is basic and it’s become an asset that people hoard. Since the 1980s, interest rates have been hugging the floor. Being a landlord was a risk-free bet. You took out a mortgage for less than 2% and you held it for 10+ years selling it for who-knows-what. But the game is changing.

More of us are staying put. Or are we?

And the problem of rising rates is that it stops expansion. It means folk will wanna stay put rather than give up their low-rate mortgage and take on something stupidly high replacement. You’d have to mad or totally loaded to do that – or both! Read here why it’s 99.99% impossible to fake this source of wealth but why you should never want to.

Since you need to be earning so much more to be able to finance a more expensive mortgage. There’s the option of taking out an interest-only mortgage (i.e you’re not chewing away at your capital instead you’re shoving the can down the road) but that’s not a great alternative either.

I know people who have a family and their home is at that cramped-but-sitll-liveable stage. But they tell us they don’t want to move and take on debt that’s a) gonna cost way more to service and b) add a chunk on to their mortgage. It doesn’t sound appealing to them. Not now anyway. And those are the smart ones.

Bigger space = bigger bills

Others, like a family friend of mine has just bought a £2m+ property with a £600k mortgage. Psst: mortgage rates are now at 6%+ so you do the math at how much they gotta pay each month to service that beast of a debt. Then there’s the utility bills – they’re almost paying as much as their mortgage.

My parents live in an apartment and have never bothered with impressing others. Sure they could move to a bigger place but bigger space = bigger bills and less freedom. You wanna have maximum freedom. If owning a gigantic house will do that for you – go for it!

But you gotta be careful and analyse your money moves. These are big decisions and they’ll impact the rest of your lives. Don’t take it lightly. And definitely DO NOT live for others. They sure as hell aren’t paying your bills.

The bottom line

High inflation = high interest rates = lower property prices = reduced affordability. What’s the point in falling house prices if you can’t service your mortgage! 

But don’t give up. If you can squeeze together a deposit, consider buying something outside of London, a 1-bed or something, and rent it out. I’m certainly keeping that option on my radar.

Will keep y’all posted!!

Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment


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