Renting in London costs the equivalent of a £23,000 annual salary - and that’s before household bills are taken into account, HomeLet research has revealed.
The average cost of renting a home in the capital rose to £1,575 a month in June, an increase of 3.9 per cent on a year earlier, according to the findings by HomeLet.
This is the more than an annual wage of £23,000, which generates an income of £1,567 a month after tax is paid.
The HomeLet Rental Index also found that rents across the whole of the country, excluding London, rose by 3.5 per cent during the past year to £773 a month.
It means a tenant needs to spend more than £9,000 a year out of their take-home pay just to cover this rent, with no additional bills included.
Are such high rents sustainable?
Increasing rents are good news for landlords who are looking to boost their profits.
However, the research questions whether these rents are sustainable as the rate of growth is slowing.
It pointed out that annual rents have previously increased at 7.8 per cent in 2015, and 10.1 per cent in London.
Is an affordability ceiling approaching?
As such, it would appear that a so-called ‘affordability ceiling’ is approaching, according to the research. This is where tenants have reached the level where they can pay the maximum amount they can afford.
The research also suggested that the average length of a tenancy is in decline.
Martin Totty, chief executive of Barbon Insurance Group - who own HomeLet - said: “Landlords are continuing to secure rental growth while there are some early signs of affordability criteria beginning to bear on the rates of rental price growth.”
He added that landlords will be considering their position carefully in the light of further taxation changes to come next year.
From next April, the tax relief that landlords can claim is being gradually reduced before being removed altogether and replaced with a 20 per cent tax credit.
As a result, landlords may lose out on thousands of pounds a year and will be looking to secure high rents to recoup some of those losses.
Mr Totty added: “With long-term drivers such as net population growth still in place, it is likely that rents will continue to rise, though affordability will continue to be crucial. The recent slowdown in rental growth rates may suggest an affordability ceiling is being approached.”
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