As a rule, experts recommend you send no more than 30% of your post-tax income on housing expenses. This threshold includes rent and utilities, such as electricity, water, and phone bills.
However, in 2017, a study found the average UK household spent 42% of their income on rent alone. This figure rose to 72% of households in London, with young people and those with low incomes suffering most. The study also estimated that workers under 30 spent roughly 50% of their post-tax income on rent. Yet these figures continue to rise at a worrying rate.
Public sector workers such as teachers, nurses and police officers are facing rising rents on a daily basis. After being forced to accept below-inflation pay increases (teaching has seen "real term" pay fall by £3 an hour, while police officers face a £2 decrease), rents have continued to rise above the cost of living. As a result, integral public service professions are being priced out of the capital.
"The last five years has seen rental affordability ratios deteriorate. [In the UK] the amount spent on rent over this period has grown by 8%, while at the same time earnings growth remains relatively weak and below levels seen before the financial crisis."
Affordable rent should account for no more than 30% of an individual's post-tax income, yet in London, workers in their 20s now spend over half their incomes on rent.
A study by the Institute for Fiscal Studies provides even more worrying figures. Nearly 40% of young adults cannot afford to buy one of the cheapest homes in their area, even with a 10% deposit. The IFS revealed that house prices in England have risen by 173% over two decades; however, the average pay for 25-34 year-olds grew by a meagre 19% over the same period.
If you are struggling and need mortgage advice, don't hesitate to contact Vincent Burch. Our expert team offer mortgage advice with no upfront fees, providing mortgage recommendations and lender decisions within one hour. Give us a call on 01603 340 644 to find out more.