BOE Says Home Renters Hit by Pandemic Could Pose Risk to U.K.
The Bank of England identified the finances of people renting homes and apartments as a potential risk to the U.K.’s economic recovery, noting they were hardest hit by the pandemic and hold a big portion of unsecured debt.
The central bank said in its quarterly bulletin published Friday that many households accumulated savings during lockdowns to control the coronavirus, but those on lower incomes who tend to rent remain vulnerable in ways that could be a threat to lenders and landlords.
The findings highlight scars to the U.K. economy likely to linger after the pandemic passes. While government support for wages saved millions of jobs and kept a lid on unemployment, the poorest households suffered a cut in income as shops, restaurants and bars were forced to close.
It also illustrates growing inequality, with those on lower incomes faring worse in the pandemic recession than richer households and those who work in professional jobs.
The bank said the finances of those renters could deteriorate, leaving debts they hold at risk. They’re also a big source of income for investors who buy property to rent it out, a growing source of assets for wealthier households in recent years.
The paper by bank staff said the U.K.’s household savings ratio rose sharply, peaking over 25% in the second quarter of 2020. Middle and upper-income households on average generated large savings, largely due to spending cuts on transport, retail and other discretionary spending. Lower-income households -- spending a higher share of income on essential goods -- were less likely to save, the bank said.
Renters were more likely to suffer a drop in income from pay cuts or furlough when compared with homeowners or mortgage holders, the bank paper said, citing survey evidence. While most renters kept up with payments through the pandemic, they were also less likely to build savings, the BOE said.
The paper was written by Jeremy Franklin, Georgina Green, Lindsey Rice-Jones, Sarah Venables and Teresa Wukovits-Votzi through the BOE’s Financial Stability Strategy and Risk division.
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