With house prices in the UK preventing many from getting on the property ladder, home ownership could soon be beyond an entire generation’s affordability, with Generation Rent firmly locked in to the rental market.
Runaway house prices and distressing economic forecasts for real wage growth are likely to mean that ever fewer are able to afford a home. Research published by PwC suggests that, despite government attempts to boost homeownership with schemes such as Help to Buy, only 40% of people in London will own a home by 2025. More than half of 20 to 39-year-olds will be renting from private landlords.
In addition, research from the National Housing Federation shows that renters in Britain pay a higher percentage of their wages, as well as higher rent than any other European countries. UK monthly rents average €902 compared to an average of €481 in Europe. Private renters in the UK spend almost 40% of their income on rent, but the European average is only 28%.
‘Just About Managing’ households – or ‘JAM’ the latest Government acronym – face this same challenge. According to the Resolution Foundation, home ownership among the “just about managing” fell from 59% in 1995 to 26% in 2015. A quarter of JAM household income is spent on housing. This isn’t just those on the bread line, but six million working-age households on low to middle incomes. Their income is mainly through paid work, but often bolstered by welfare support. However, households earning £50,000 a year but with several children to support are included too.
What happens if people become sick and are unable to pay their rent? In the same way that mortgage payments should be protected, rent bills must be paid so should be protected too.
“Help paying rent when sick” and several variants of this search on-line has yet to deliver the results I’d hoped for. Statutory Sick Pay? Benefits? Yes. Insurance to protect income? Not so much. The Money Advice Service highlights that people should check if they have insurance, as well as seeking help from an employer. But more can be done to promote how people can provide a safety net for themselves, including short-term solutions to get people back on track. Swiss Re research shows that only one working-age person in ten is covered by income protection insurance. Yet the products are there, but not reaching the majority successfully.
According to the Royal London paper, Renters at Risk, the number of people in paid work living in rented accommodation has risen by over 90% over a decade. In 2013/14 there were around 7.7 million working adults renting, compared with around 4 million a decade earlier.
Traditional triggers sparking a conversation about insurance needs are changing. Insurance has not caught up to address the growing consumer need to pay rent instead of a mortgage. The challenge is how propositions can be made relevant to renters and reach them effectively, be it through the internet, landlords or letting agencies. Managing the risk is beneficial to all parties, not least insurers and advisers otherwise dependent on a home purchase.
The Autumn Statement announcement of a ban on letting fees provided some hope to renters. Letting fees add as much as £500 to rental costs and the ban could benefit four million households in England and Wales. Yet in practise, it may do little to help people save money: letting agents could simply shift fees to landlords and in turn, rents may increase further.
Many people would assume that the State would cover their rent if they were to lose their income through sickness. In reality, renters may discover they are not eligible for housing benefit, or that the amount they receive would only cover some of their rent.
The recent report, Building Resilient Households, written by SAMI Consulting, highlighted that a million people suffer a prolonged absence from work due to sickness each year. The report calls for a task force to be established to inform people about the need to plan for contingencies, such as sickness absence and provides a case for the Department for Work and Pensions to amend the rules to facilitate more of an incentive to arrange financial protection.
The Government’s Green Paper, “Improving Lives: Work, Health and Disability” provides an opportunity for the industry to emphasize how insurance can help families’ weather sickness absence, both financially and through rehabilitation. The workplace and employers are a key focus of the paper, with a long-term objective of halving the disability employment gap. The chance to consider the wider implication of helping families’ resilience, cannot be missed.
A successful outcome will need to be the result of joined-up thinking, both between financial service providers and Government and within Government itself. In this regard, given that we should all be seeking ways to make cover easy to purchase, the recent “non-announcement” of a salary sacrifice exemption in the Autumn Statement was a disappointment. It seems sensible to return to this when responding to the Green Paper, since the financial costs to the Exchequer are minimal.
Whatever the year ahead brings, we need easily-accessible propositions to guard against loss of income, which are marketed in the right way to appeal to more flexible lifestyles, such as the needs of Generation Rent. Without income, other sought-after financial behaviours simply can’t exist.
One thing is certain: this won’t be the last we hear about JAM with Generation Rent.
Maxine Udall is marketing & research manager at Swiss Re