Yahoo Finance Renters squeezed hard as households lose optimism, Bank of England says
Renters are being squeezed more tightly than homeowners amid signs that households’ balance sheets are worsening, Bank of England data has revealed in a biannual survey.
In 2017, tenants spent a greater share of their household income on rent compared to last year. Rent also took up a greater share of their earnings than homeowners’ mortgages. The proportion of renters paying more than 30pc of their income on housing also rose more sharply than mortgage payers.
Almost 30pc of renters said they at could not afford any change in their rental costs, and the proportion of renters who would have to take some kind of action, such as moving home, to afford any increase in rental payments was far higher than the equivalent share of people with mortgages.
But the survey also showed that if faced with a rent hike, around 50pc of renters might find it “very difficult” or “virtually impossible” to find cheaper accommodation. Renters also tend to have lower savings and incomes than mortgage holders, so, in a scenario where both rents and mortgage rates rose they would be harder squeezed.
Overall, households felt negative about the outlook for their finances, the first time this sentiment has hit a negative balance in the past three years. The explanation for this, the bank said, was “the sharp slowing in real income growth” and a “rise in cost of living” households have experienced due to rising inflation.
The negative sentiment shown by households in the survey, comes as household finances have worsened. “After several years of a declining trend in the percentage of highly indebted households, this trend has reversed in the past year," the bank said.
Meanwhile the Bank said pension funds are taking increasing risks with savers’ money in an effort to gain much-needed returns at a time of ultra-low interest rates.
Defined benefit schemes, typically offering final salary pensions, now have more than £100bn invested in hedge funds. That amounts to 7pc of their total assets under management, up from just 1.5pc in 2009.
“A reason cited for this is that pension funds are increasingly pursuing a so‑called ‘barbell’ investment strategy, whereby they are moving away from medium‑risk strategies, and holding a portfolio of higher risk/return assets (hedge funds) and low‑risk assets (bonds) to hedge their pension liabilities,” the Bank said.
“Such investment strategies have grown in recent years as headline pension deficit measures have worsened due to compressed long‑term interest rates.”
