In the UK the rental economy is booming, with the number of privately rented properties seeing an increase of 63% between 2007 and 2017. Furthermore, an additional 560,000 households are expected to be in private rental accommodation by 2023.
Today, that equates to a fifth of the population living in privately rented accommodation – that’s around 4.7 million households. This growth is partly driven by the increased cost of buying a home; rising house prices in the UK have outpaced salaries, with the average home (outside London) now costing £230,292 (up from just £70,000 in 1998). That’s almost eight times more than the average salary of £29,588 a year. Due to this large expense, first-time buyers typically spend eight years saving to buy a home, with those based in London saving for an additional two years.
The rental industry’s current relationship with the gig economy
Despite the huge rental economy in the UK, the industry is still tricky to navigate for renters. In the last ten years digital transformation has impacted almost every industry and a number of technology-driven startups have sprung up in the proptech space, revolutionising everything from mortgages to property management. Buyers, landlords and estate agents have streamlined processes however, renters are yet to be provided with the same level of service.
Renting is extremely expensive and for gig-economy workers, the irregular income associated with part-time/frequently changing shift work means something as necessary as renting a home can become a challenge.
The average tenancy deposit in England is currently valued at £1,110 and, given the average wage in the UK is £29,588, an average renter based in England is expected to put down a deposit that is over half of their monthly income. Without a consistent ‘pay-day’, gig-economy renters are often classified as ‘high-risk’ and, as a result, asked to pay a bigger sum of money up front or seek a guarantor.
As the gig economy accounts for 4.7 million British workers, it is crazy that a flexible financial lifestyle has not been further taken into account. Using today’s technology, it’s possible to create a rental system that is financially beneficial for both renters and landlords in a way that generates and maintains financial security for all.
Deposit free renting
Liberating gig-economy workers, young renters and those from disadvantaged backgrounds who cannot afford the over-the-top fees can be done ditching the deposit.
Rental affordability remains the number one priority for tenants when choosing a property. But renters are currently expected to pay a deposit over five weeks rent before they are eligible to move into the property.
A recent poll found 40% of working age Britons have less than £100 in savings, with the proportion increasing to more than 50% in specific regional locations. Thus, many renters can be living paycheck to paycheck and a deposit of this size this can be prohibitively expensive. In worst case scenarios, renters can become trapped in unsuitable and substandard accommodation.
By offering renters the option of deposit protection insurance, the landlord is still covered for any damage or loss of rent (for a higher value than is covered by the traditional deposit) without the need for the renter to pay out a large lump sum at the beginning of their tenancy. This can enable renters to save some money – whether that is for a house deposit or just in case of a rainy day.
One way the property industry can further streamline the process for renters is to harness disruptive technology available. One of these services is open banking – a service that provides third-party financial service providers open access to consumer banking, transaction, and other financial data from banks and non-bank financial institutions.
For the property sector, open banking brings with it the opportunity to re-set the precedent of incoherence that has been established by traditional processes. Currently landlords have to request and wait for paperwork such as bank statements, references and proof of previous addresses to be collated and sent by the renter. The validity of these documents must then be checked, which can mean renters wait weeks before they are allowed to move into a property.
Through the innovative technology of open banking, it is now possible to automatically verify a renter’s income and past rental payments using their transactional history. Because data should belong to the person it concerns, renters can then access this on-demand and share it with different letting agents and landlords, should they want to. Not only does this speed up the process enabling landlords to make informed and fast decisions regarding a tenancy, it ultimately streamlines the rental process for all parties involved.
Other technologies can also help build financial resilience for renters. For example, rent tracking technology that records monthly rental payments and allows them to build up a credit history, ultimately improving their credit rating during the course of their tenancy. A strong credit score translates into higher savings for renters, with lower financing rates and better access to a range of financial products.
At the moment, the rental landscape does not cater for renters in the same way it does for landlords. The industry has a way to go, but the steps to getting there are exciting and revolutionary exciting time ahead of it, as old systems die and technology takes the reigns, the process of renting should and must accommodate flexible workers and those at a financial disadvantage. At the end of the day, every human being has the right to a safe roof over their head and the opportunity to build a better life and it is the responsibility of the industry to make sure it is fully equipped to do so.