Since the end of the coronavirus pandemic and the start of the war in Ukraine in February 2022, UK consumer price index (CPI) inflation has increased significantly, rising by 10.1% in the year to January 2023. This was a slight decrease from the 10.5% recorded in December 2022, but inflation remains very high by historic standards. In response, the Bank of England has raised its base interest rate 10 times since December 2021, from 0.1% to 4% as of February 2023. Separately, figures from the Office for National Statistics (ONS) showed average weekly earnings fell in real terms in the year to December 2022 by 3.1%, one of the “largest falls in growth since comparable records began in 2001”.

The Resolution Foundation think tank’s report ‘Housing outlook, Q1 2023’ stated that although mortgagors had been affected by rising interest rates, private and social renters were “much more likely to report falling behind or struggling with their housing costs”. It said that “worryingly high numbers” of renters reported signs of “material deprivation” and were resorting to “sometimes unsustainable strategies” to manage their housing costs, such as borrowing money, using savings or not heating their homes.

1. Renters

1.1 Private rented sector

Statistics from the Department for Levelling Up, Housing and Communities’ ‘English housing survey 2021–22’ showed that 4.6 million households (19%) rented privately. Private renters spent a third of their household income on rent, the highest percentage spent on housing of any tenure type. The survey found that around a quarter of private renters were finding it “fairly or very difficult” to afford their rent.

Data from the ONS showed that private rental prices in the UK increased by 4.4% in the year to January 2023, the largest increase since the data series began (figure 1). The median monthly rent in England was £800 a month in the year to September 2022, the highest ever recorded. In London, median monthly rent was £1,475.

Figure 1: UK annual private rental price, percent change

Figure 1: UK annual private rental price, percent change

(Office for National Statistics, ‘Index of private housing rental prices, UK: January 2023’, 15 February 2023)

A survey by the campaign group Generation Rent in December 2022 found that half of respondents who had rented their home for over a year had been asked for a rent increase by their landlord. Nearly half of all rent increases were of over £50 a month. Generation Rent has called for rent controls in the private rented sector, along with a suspension of “section 21 no fault” evictions, as was temporarily introduced during the coronavirus pandemic. Generation Rent and the Resolution Foundation think tank have also called for an increase in local housing allowance (LHA) rates, which are used to calculate rates of housing benefit and the housing element of universal credit for private renters. LHA rates were increased in 2020 as part of the pandemic response but have since been frozen in cash terms.

The National Residential Landlords Association (NRLA) has said it is “vigorously opposed” to rent caps or freezes in the private rental market, arguing that this “would serve only to fuel the supply and demand crisis which has engulfed the private rented sector”. However, the NRLA has supported calls for LHA rates to be increased.

In response to a recent parliamentary question on LHA rates, government minister Mims Davies highlighted that LHA rates were raised to the 30th percentile in 2020, which she called “a significant investment of almost £1 billion”. Ms Davies added that the government had maintained the increase since then “so that everyone who benefited from the increase continues to do so”.

On the issue of evictions, the government has committed to abolish no fault evictions under section 21 of the Housing Act 1988. However, at the time of writing, it has not introduced legislation to do so.

1.2 Social rented sector

According to the ‘English housing survey 2021–22’, 4 million households (17%) rented from social landlords. Social renters spent 27% of their household income on rent (inclusive of housing support). The survey found that 25% of social renters were finding it “fairly or very difficult” to afford their rent.

Since 2020, social rents have been capped at CPI plus 1%. Based on this calculation, social renters faced a maximum rent increase of 4.1% from April 2022. A survey by Inside Housing found that all the largest housing associations in the UK had increased rents from April 2022 by the maximum amount. Social landlords said it was in response to their own rising costs related to inflation and to ensure “vital investment work” is carried out on their housing stock.

Under these rent cap rules, social rents could have increased by over 11% from April 2023. However, in the November 2022 autumn statement, the government announced that social rent increases would be capped at 7% for 2023–24. The government said it would save the average social tenant £200 in that year. The rent cap has been welcomed by the National Housing Federation, the industry body for social housing providers. However, the Joseph Rowntree Foundation said that although the cap “goes some way” to mitigating the full impact of inflation, rent rises would “pile pressure onto already squeezed household budgets” for social renters.

The Resolution Foundation housing report also found that social renters were the most materially deprived group by tenure type. Almost 30% of those surveyed could not afford to keep up with other bills or debt payments, and almost 50% could not afford to repair major electrical goods, put their heating on when needed, or to spend a small amount of money on themselves each week.

2. Owner occupiers

Owner occupation is the most common form of tenure type in England, accounting for approximately 65% of households in 2021–22. These comprised 35% who owned their home outright and 30% with a mortgage. In the ‘English housing survey 2021–22’, 7% of mortgagors said they were finding it fairly or very difficult to afford their mortgage.

Higher interest rates can mean higher borrowing costs for those with mortgages. Cost of living pressures have also impacted the broader housing market. Data from the Halifax house price index in January 2023 showed that the average UK house price was £281,684, a decrease of 4.2% from its peak in August 2022. The number of mortgage approvals fell significantly at the end of 2022, down 51% compared to December 2021.

Average fixed-term mortgage rates increased in the autumn of 2022, but have since fallen. The BBC reported that on the day of the Liz Truss government’s ‘mini-budget’, on 23 September 2022, the average interest charged on a five-year fixed-rate mortgage was 4.75%. This increased to 6.5% in October 2022, but had reduced to 5.25% in February 2023.

The Bank of England has estimated that “around four million households will be exposed to [mortgage] rate rises over 2023”. The figure includes those on variable rate mortgages and those coming to the end of fixed-rate products. The bank estimated that the number of households with high mortgage debt burdens would increase in 2023 to “2.4%, or around 670,000 households”, approaching levels comparable to the start of the global financial crisis in 2008. Unemployment is also projected to rise in 2023, which may increase the number of households that cannot afford their mortgage payments.

However, the governor of the Bank of England, Andrew Bailey, was optimistic about future mortgage rates when he gave evidence to the House of Commons Treasury Committee in January 2023. He said that although mortgage offers “declined dramatically” after the mini-budget, new fixed-term mortgage rates “had come down since”. He said there had been a price “correction in that respect, and that benefits people seeking mortgages”.

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Cover image by Belinda Fewings on Unsplash.