Rising numbers of landlords seeking security from guarantors

Higher mortgage rates and the continuing disparity in the supply and demand of rental stock have seen a dramatic rise in the number of tenants on salaries of over £25k being asked to provide a guarantor, with those earning in excess of £50k seeing the largest increase.

Related topics:  Finance,  Landlords,  Tenants,  Guarantor
Property | Reporter
18th July 2023
Landlord Keys 22
"As well as a rise in the number of tenants who find themselves needing to provide a guarantor, we’ve also seen a big increase in landlords taking out rental insurance"

New research from rent tech experts, Goodlord, analysed more than 220,000 tenancies taken out between January 2020 and June 2023. Its data reveals a steady increase in requests for renters who earn between £25,000 and £74,999 to provide a guarantor.

The average salary for a full-time employee in Britain in 2022 was £33,000. In 2020, it was £31,461.

Tenants earning between £25,000 and £49,999 see a major rise

In 2020, just 3.7% of tenants earning salaries of between £25,000 and £49,999 were asked to provide a guarantor by their letting agents or landlord. However, in 2023 to date, this has risen to an average of 5.84% of all tenants - an increase of 58% compared to 2020 figures.

This means requests for guarantors are now far higher than even at the peak of the pandemic when hundreds of thousands of renters were placed on furlough or faced an increased chance of redundancy.

With landlords facing new pressures, including rising interest rates pushing up mortgage costs, many are seeking out the security of a guarantor when agreeing on new tenancies. This acts as an extra layer of insurance against unforeseen circumstances, such as a tenant losing their job and being unable to pay rent.

Steep rise in guarantors for tenants earning over £50,000

Perhaps more surprisingly, there has also been an increase recorded in the number of tenants earning between £50,000 and £74,999 each year being asked to provide guarantors, despite salaries in this range being far higher than national averages.

In 2020, just 1.35% of earners in this bracket were required to secure their tenancy with a guarantor. In 2021, this rose to 1.41%, before rising again in 2022 to 1.92%.

However, in 2023 to date, the average number of tenants commanding salaries of £50,000 to £74,999 being asked to provide a guarantor is 2.59%. Despite still being a very small percentage of renters in this income bracket, this represents a 92% increase on 2020 levels.

The rental experts at Goodlord expect the level of guarantor requests to rise throughout the rest of 2023, with rental prices predicted to peak over the summer months, according to Goodlord’s monthly Rental Index.

Cost of rent 2020 vs. 2022

In 2023 to date, the average cost of a rental property in England has been £1,099 per property per month, rising to £1,871 per month for properties in London.

This is up from an average price of £937 per property per month in 2020. In London, the average price of a property in 2020 was £1,612.

As tenants face these increased rental costs, many are seeing a greater proportion of their take-home pay go towards rent. As a result, this means more renters are having to provide the additional security of a guarantor when signing a new tenancy.

Oli Sherlock, Director of Insurance at Goodlord, comments: “The rental market is facing a series of overlapping challenges. We’ve spent years not building enough homes, meaning the supply of rental stock is low. This is being compounded by landlords - who are facing rising costs and ever more complex regulation - selling up and leaving the market.

“This supply and demand problem means rents are rising at a time when tenants have less disposable income thanks to the cost of living crisis. This means more tenants are being asked to show they have the support in place to meet their rental obligations, should they need it. As well as a rise in the number of tenants who find themselves needing to provide a guarantor, we’ve also seen a big increase in landlords taking out rental insurance.

“It’s a far from ideal situation for either tenants or landlords. The Government should see this as an additional sign that more support for the rental market is urgently needed.”

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