Why is Tenant Protection Necessary?
Around 23% of households in the United Kingdom are in the private rented sector, with this proportion doubling since 2002. Although tenants homes maybe at risk if they are unable to pay the rent due to illness or the death of one of the householders, protection remains a rarity among renters.
Research by Sainsbury’s Bank found that while 41% of homeowners have life insurance or critical illness cover, just 26% of those renting have a similar policy in place.
It is estimated that only around 6.5% of income protection policyholders are in rented accommodation which potentially leaves many households dependent on their savings if they are unable to work due to long-term illness.
A Safety Net
Universal Credit is available to individuals unable to pay the rent themselves due to illness or the death of a partner. However, as the amount someone receives is determined by their income and savings, how many people they live with and the Local Housing Allowance rate, there is no guarantee the benefit will cover the rent.
Just how unlikely this is was illustrated by research by Shelter. Based on analysis of government figures, it found that as a result of private rents rising faster than the LHA rate, shortfalls are commonplace. The biggest is in London, however, outside the capital they could still be looking at an extra £531 of housing costs every month.
Adding further weight to the need for protection, information from Statista, the UK’s leading statistics provider, demonstrates how dependent renters are on their income. It found that, on average, just under 30% of the average salary is spent on rent in the East Midlands, with this figure climbing to over 35% for those renting in the capital. (Full regional figures can be seen on the graph).
Given that the English Housing Survey found owner-occupiers spent an average of 19% of their income on mortgage payments – a lot lower than rent payments, there is clearly a pressing need for renters to consider protection.
As well as a potentially larger liability, private landlords may not be quite so sympathetic as lenders when it comes to negotiating a mortgage holiday.
Falling between the Gap
Although their homes are potentially more at risk in the event of long-term illness or death, it is easy to see why renters are failing to take out protection: with most protection sold on the back of a mortgage, they are simply not discussing the protection conversation.
Renters tend to fall through the gaps a bit. A significant number of people rent their homes but the focus for financial needs tends to be on the mortgage.
The situation is exacerbated by the language used in protection literature, where the importance of protecting the home and mortgage is a common message. Although these policies are just as suitable for someone in private rented accommodation, this focus just isn’t there.