Can you afford rent on the National Living Wage?

Does the National Living Wage live up to its name? In the Autumn Budget, Chancellor Rishi Sunak increased the UK’s National Living Wage to £9.50 per hour. This is in line with the rate recommended by the Living Wage Foundation for last year. Workers under 23 years of age will […]

Does the National Living Wage live up to its name?

In the Autumn Budget, Chancellor Rishi Sunak increased the UK’s National Living Wage to £9.50 per hour. This is in line with the rate recommended by the Living Wage Foundation for last year. Workers under 23 years of age will be entitled to less.

So, is £9.50 an hour enough to pay your rent? 

[top_pitch]

What does the National Living Wage cover?

According to the Living Wage Foundation, the ‘Real Living Wage’ for 2020/2021 was £9.50 per hour and £10.85 in London. It covers everyday needs like the weekly shop or a surprise trip to the dentist. It’s a subsistence wage, meaning that it’s only enough to provide the bare necessities of life. 

The Resolution Foundation calculates these rates annually by looking at living standards and cost of living data. A Minimum Income Standard is set by pricing up a basic ‘basket of goods’ that includes housing and services. Unsurprisingly, it’s hard to find any mention of savings as part of a minimum income.

Does the National Living Wage pay enough for rent?

When calculating housing costs for a living wage, the Resolution Foundation makes the following assumptions: 

  • Families with children live in social housing.
  • Couples without children privately rent one-bedroom homes.
  • Singles occupy one-bedroom flats or studio apartments in the private rented sector. 

Social housing is scarce. According to Citizens Advice, “Even if you get on the waiting list, there’s no guarantee you’ll get a home.” Therefore, most families with children can only live in private rented accommodation and might need benefits to top up their earnings.

Further to this, the majority of singles without children are assumed to live in shared accommodation if they are based in expensive cities such as London. 

It’s important to note that £9.50 per hour is not really a living wage everywhere. It depends on how high rents are where you live.

Living with your parents or extended family and saving for a deposit could be a wiser move if you’re planning to get a mortgage in the future.

[middle_pitch]

How do you pay rent on £9.50 per hour?

If you’re working full-time, £9.50 per hour equates to £356.25 per week, or £18,525 before tax and National Insurance. 

On the National Living Wage, you could pay all or some of your rent, depending on your hours of work, the area in which you live, the cost of rent, and your individual arrangements.

A couple without children, both working full-time and living in an inexpensive area should be able to cover all of their rent if they’re both earning the National Living Wage. 

Many families, particularly single-parent families, may find it hard to pay rent on the National Living Wage. Universal Credit or Housing Benefit should pick up any shortfall.

Each area of the UK has a Local Housing Allowance that reflects the cost of rent for acceptable accommodation. Therefore, calculations for Universal Credit include adjustments for the area in which you live. This means that if your rent is low, it could be under the threshold for assistance with housing costs. 

If you’re unsure whether you qualify for support, you could try this benefits calculator from Turn2Us. It takes into account all of your individual arrangements and gives an accurate estimate of any help you can get with rent. There are many factors affecting each claim, so there is no one calculation that fits all. 

Is it possible to rent privately on the National Living Wage?

Even if you are able to get help with your rent, it can be difficult to be accepted as a tenant in a popular area. Where there is competition for a rental property, the landlord may be in a position to choose a better-paid tenant with more financial security. However, it’s illegal for landlords to discriminate directly against anyone who is claiming Universal Credit or Housing Benefit. 

It makes sense to look for accommodation in cheaper areas if it’s practical to do so. That way, if you are able to pay most or all of your rent without Universal Credit, any future pay rise can be spent on other things, or put in a savings account

Final word

The National Living Wage can pay just enough to cover rent, but only in certain situations. 

It’s important to note that £9.50 per hour is the minimum amount an employer should pay anyone over 23 years old from April 2022. There’s nothing to stop you asking for a pay rise, particularly if you live in an expensive area. 

The post Can you afford rent on the National Living Wage? appeared first on The Motley Fool UK.

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