Soaring rental costs, plummeting availability and economic uncertainty are fueling growing demand for rental guarantees as cautious landlords seek to protect their incomes from the ripple effects of the cost of living crisis.
The number of owners asking for a guarantor has increased by 36% in four years, according to new data. Meanwhile, the average cost of rent hit a 13-year high of £969 in the last quarter of 2021, an annual increase of 8.3%, Zoopla warned.
Rent now accounts for 37% of a single person’s gross income and average rents have increased by 12% over the past five years.
In addition to rising housing costs, tenants and landlords also face rising prices for everything else, including food, energy bills and national insurance.
Usually a guarantor can be requested if the renter is a student or has low incomes, but figures from rental platform Goodlord show that out of 730,000 non-student renters, almost 12% were asked for a guarantor in 2020.
But despite the economy picking up since then, with growth of 7.5% in 2021, according to the Office for National Statistics (ONS), Goodlord says claims for guarantors have continued to rise – up 13 % in 2021.
Tenants are faced with an impossible situation where they have to find the money to pay higher housing costs, in the midst of a cost of living crisis.
The idea of owning a home themselves is also becoming increasingly out of reach. This is due to the lowest interest rates eating away at their savings. With inflation currently at 4.8%, no savings account can beat that.
Housing prices also continue to rise, largely due to a lack of availability and booming demand. They rose 11.2% year-on-year in January, the highest monthly figure in 17 years, according to Nationwide.
The average house price is now £255,556, which would typically require first-time buyers to have at least £25,000 saved as a down payment.
Rent hikes, tax increases, energy bills rising 54%, and the rising cost of other day-to-day items ranging from food to fuel hazard are shredding the well-balanced budgets of the average renter. In addition to this, tenants can and are encouraged to provide a guarantor if a landlord or realtor wants additional security to protect rental payments.
In 2020, the economy collapsed, millions of people lost their jobs or were laid off, and many people were unable to work due to the virus.
This has led to landlords becoming more demanding of potential tenants and asking for a guarantor is a way of guaranteeing a tenant’s rent if they are unable to pay.
Meanwhile, the UK has seen a steady rise in the cost of rent. As rents continue to rise, applications for guarantors have not slowed despite the economic recovery since 2020.
Guarantors can be requested for everything from a rental agreement to a personal loan. A guarantor promises to make payments if a tenant cannot pay their rent, for example if they lose their job or are unable to work.
However, while this can be a helpful way to help someone, it is important that both parties are fully aware of how the agreement works.
The guarantor, for example, may end up paying any rent owed until the end of the lease if the tenant is unable to do so. In some cases, for example if a guarantor is named on a mortgage, their own home may need to be used as collateral for a loan.
Blake Richmond, Managing Director of SEO at Goodlord, comments: “Appointing a guarantor can be a positive thing and allow more tenants to access accommodation, but it can add complications to the rental process. and it is something that should only be requested when really necessary, lest it create unnecessary barriers to entry into an already competitive rental market.
Around 13 million people rent privately in the UK, but despite affordability challenges many tenants still face poor living conditions, unfair rent increases and a lack of stability and security .
The UK rental market is often criticised, particularly in relation to tenants’ rights in Europe, and many organisations, including Shelter, have campaigned for years for new regulation to be introduced to the rental market.
Some changes come as part of the Tenant Reform Bill, which is expected to ban no-fault evictions, under which a landlord can end a tenancy without reason, but this has yet to be enacted into law. due to pandemic-related delays.