The rental market in the United Kingdom is witnessing a notable increase in the number of tenants being required to provide a guarantor to secure a rental property, according to new research conducted by Goodlord, a property technology company. The study, which analyzed over 220,000 tenancies taken out between January 2020 and June 2023, uncovered a steady rise in requests for renters with annual incomes ranging from £25,000 to £74,999 to present a guarantor.
Amid a shortage of rental properties and mounting inflationary pressures, average rental prices have been soaring, leading landlords to seek additional assurances from tenants. The data revealed that in 2020, only 3.7% of tenants earning between £25,000 and £49,999 were asked to provide a guarantor by their letting agents or landlords. However, this figure has surged to an average of 5.84% in 2023, representing a 58% increase compared to 2020.
Remarkably, even tenants with higher incomes in the range of £50,000 to £74,999 have experienced an uptick in guarantor requests. In 2020, only 1.35% of earners in this bracket were required to secure their tenancy with a guarantor. Although still a relatively small percentage, this proportion has risen to an average of 2.59% in 2023, signifying a significant 92% increase compared to 2020 levels.
Landlords, grappling with new challenges such as rising interest rates that elevate mortgage costs, are turning to guarantors for added security when entering into new tenancy agreements. This additional layer of insurance safeguards against unforeseen circumstances, such as a tenant losing their job and subsequently struggling to meet rental payments.
The situation is exacerbated by the escalating rental prices, which are projected to reach their peak during the summer months of 2023. Goodlord’s monthly Rental Index for this year has revealed that the average monthly cost of rental properties in England has risen to £1,099, with properties in London averaging at £1,871 per month. These figures mark an increase from the 2020 averages of £937 and £1,612, respectively.
Consequently, tenants find themselves allocating a greater proportion of their take-home pay toward rent. As a result, an increasing number of renters are compelled to provide the added security of a guarantor when entering into new tenancies.
Oli Sherlock, director of insurance at Goodlord, emphasized the series of overlapping challenges faced by the rental market. Insufficient housing construction over the years has created a scarcity of rental properties, compounded by landlords exiting the market due to rising costs and complex regulations. This supply-demand imbalance, coupled with tenants’ diminishing disposable income amidst a cost-of-living crisis, has led to escalating rents and a growing reliance on guarantors. Additionally, the study revealed a substantial surge in landlords obtaining rental insurance.
The situation is far from ideal for both tenants and landlords, prompting calls for urgent government support and intervention to address the rental market’s pressing needs. Oli Sherlock asserted that the government should perceive the rise in guarantor requests as a clear signal of the necessity for increased assistance in the rental market.