New data reveals that renters in the UK are spending a growing proportion of their income on rent, while the rate of direct debit payment failures is climbing. Despite inflation easing and wage growth outpacing it, many households are struggling to manage their finances, with rent affordability and missed bill payments becoming more widespread.
Renters paying a larger share of income towards housing
According to recent analysis, renters are now spending an average of 28.8% of their income on rent—up from 26.6% a year ago and 25% five years ago. This steady rise highlights the increasing financial pressure on those in the rental market. Sarah Coles, head of personal finance at Hargreaves Lansdown, commented: “The white heat of the cost-of-living crisis may have cooled for an awful lot of people, but renters are still getting burned. They’re now spending a far higher percentage of their income on keeping a roof over their head, and the proportion of their income they’re having to hand to the landlord is rising faster than at any other time in the past five years.”
Coles also noted that renters are facing more financial strain than homeowners. “Those with mortgages have an average of £315 left at the end of the month, but renters only have £79. For renters, there’s no light at the end of the tunnel,” she added. Landlords selling properties, rising costs due to regulation, and potential hikes in capital gains tax are contributing to a shrinking rental market, pushing rent prices even higher as demand continues to outstrip supply.
Missed payments on the rise
The financial difficulties renters face are not limited to housing costs. The percentage of direct debit failures has risen significantly, reaching 2.21% in July, compared to 2.01% a year earlier and 1.68% five years ago. Despite only a slight increase in the average monthly direct debit payment—from £300.50 in July 2019 to £306.56 in July this year—missed payments are becoming more common.
This trend extends to household essentials. The failure rate for direct debits on electricity and gas bills has reached 2.25%, the highest level since 2019. Mortgage direct debit failures also hit 1%, a rare occurrence only seen once before in December last year. Loan repayments saw a failure rate of 3.75%, while gym memberships had the highest failure rate at 5.65%.
Coles explained that these missed payments aren’t solely a result of low income. “The data focuses on direct debits, which are more commonly used by typical earners rather than those on the lowest incomes. It shows that a growing number of more typical earners missed bills in July,” she said. Even with inflation easing and National Insurance cuts putting more money in workers’ pockets, the rise in payment failures suggests many people are overspending and neglecting essential bills.
Financial resilience at risk
While some households are benefiting from higher wages and lower inflation, others are finding it increasingly difficult to manage their finances. Coles warned of the dangers of overspending and missing vital payments: “There’s a reasonable chance that after holding back for so long, we’re getting carried away, so there’s nothing left to cover the vital bills. The risk is that we may end up building debts or damaging our credit rating, making it more difficult to find affordable borrowing in the future.”
To prevent further financial damage, Coles advised households to reassess their spending habits. “It’s a better time to draw up a budget, work out where you’re overspending, and cut back. It also makes sense to make room for things that will bring long-term benefits, such as building an emergency savings safety net, contributing to a pension or SIPP, and investing in a stocks and shares ISA for the future.”
As renters continue to bear the brunt of rising costs and landlords exit the market, the UK’s rental sector is facing increasing strain. For landlords and property investors, the ongoing affordability crisis highlights the need to balance regulation and market forces to ensure long-term stability in the housing market.
The government released this data today, within its data covering economic activity and social change: Economic activity and social change in the UK, real-time indicators.
