Monthly Archives: February 2013

Attitudes to saving

Attitudes to saving creating national financial precipice.

(Which is precisely why parents need to create Trusts to benefit future generations – not just their children.)

  • A quarter of people have loaned ‘a substantial amount’ to their children
  • 30% have been forced to cut back on savings due to spiralling costs
  • One in five people are worried about job security in 2013

Almost 15 million people across the UK (31% of the adult population) are not currently making any efforts to save for the future, while eight million people (17%) have no savings to their name at all, according to Scottish Widows’ seventh annual Savings and Investment Report.

Although 63% of Britons are managing to put something away, nearly a third (32%) have a total pot of less than £1000, which is less than the UK average combined monthly mortgage and council tax costs (£1009). In addition, almost one in five of those who expect their financial priorities to change are seriously concerned about job security for the coming year.

These statistics paint a bleak picture of people’s ability to cope with financial shocks that could hit now or in the future.

Families shoulder the burden

A quarter (25%) of respondents with families have loaned ‘a substantial amount’ to their children, often to simply help them meet daily living expenses. Support is also provided for higher education and property purchases, with an average loan of almost £15,000 – an 11% increase from the amount reported last year. Interestingly, when asked what they’d rather give their children money for, parents opted for helping them get on to the housing ladder (63%) over university fees (21%).

This level of support is having a stark impact on parents’ finances with a quarter (24%) cutting back on their savings and almost one in ten (8%) stopping saving altogether.

However, it isn’t just parents funding their children; whole families are pulling together to support each other. The report shows that grandparents are helping their grandchildren; children are lending money to their parents, and siblings are also supporting each other. Specifically, on average grandparents have lent £3,665 to their grandchildren, 6% have lent to their parents with an average amount of £4,371 exchanging hands and 9% of people have lent an average £3,485 to their sibling.

The savings shortfall spiral

The wider economic climate is also increasing the pressure on those struggling to save. 30% of people report that they have been forced to cut back on their savings by rising costs, whilst a further 27% are saving less than two years ago, principally due to a lower level of disposable income. Across the board, the majority (64%) of people report that having no money available is a major barrier to saving.

Iain McGowan, Head of Savings and Investments at Scottish Widows said:

“People clearly recognise the importance of saving something towards their future financial wellbeing, which is encouraging. The importance of building a safety net for themselves and their families is a priority, with 63% of people reporting that they managed to save some money in the last 12 months. However, just a quarter of those people believed they were saving enough to meet their long-term needs; with a further 37% saying they would definitely not be achieving this goal.

“When we are faced with immediate financial commitments, such as mortgage payments and day to day living expenses, then it is absolutely necessary to give these pressing needs priority. However, taking a wholly short-term view of our finances will mean we are unprepared for the financial needs and challenges that lie ahead in the future.”

Interest-Only Mortgage of Over-65s “Average £43,000”

Our comment: “Thoughtful parents can avoid their children staying in this position by taking out a Home Protection Plan which can lend cash to pay off the mortgage without increasing Inheritance Tax Bills.”

 But on with the More 2 Life Press Release:

– More 2 Life urges FSA to make lenders issue warning letters to interest-only borrowers

– Interest Choice Plan customers can choose to pay interest and withdraw funds                                                            

Over-65s are paying off average interest-only mortgages of £43,000 outlining the scale of the interest-only time-bomb and the need for solutions, analysis of customer data by innovative equity release lender More 2 Life shows.

 

The lender is urging the Financial Services Authority – which is due to publish comprehensive research on the interest-only issue at the end of March – to force lenders to issue warning letters to customers.

 

It believes a system of Red, Amber and Green letters – modeled on the similar scheme for endowments – would help customers who do not have repayment plans to take action.

 

More 2 Life is making the call after customer analysis since launch found that more than four out of five customers taking out its Interest Choice Plan are using the money released to clear mortgage balances ahead of the fixed repayment date and switch to a lifetime mortgage without a fixed repayment date.

 

It found customers are taking out loan-to-value plans at an average of 22% despite being entitled to take a maximum average of 32%. The average amount released is £43,570.

 

Equity release lifetime mortgages enable customers to clear the capital owed ahead and to continue paying interest if they wish without having to sell their home or in extreme cases be repossessed.

 

Jon King, Managing Director of More 2 Life, said: “The interest-only time bomb is purely and simply about the looming repayment dates for mortgages. Customers can pay the interest but they need to find substantial sums to clear the capital borrowed.

 

“The concern is that people hope for the best which is why regular warning letters from lenders will help concentrate customers’ minds. Lenders themselves already acknowledge it is a major issue and many are concerned.

 

“The FSA’s report in March may provide more data on how many customers do not have repayment plans but currently nobody has a clear picture of the issue. Red, amber and green letters would help provide that clarity and help customers.”

 

More 2 Life’s own analysis shows up to 103,000 over-65 households are paying mortgages with around 81,000 households in the 65-74 age group and 22,000 in over-75 age groups. In total they spend around £1.36 billion a year.

 

Its Interest Choice Plan, which was designed in response to demand from equity release customers who are still working or need to clear interest-only mortgages enables customers to choose the level of interest they pay on loans and the term.

 

They can also fix their interest rate and have access to a lifetime drawdown facility.

Customers can choose to pay all or part of the monthly interest on their loan and choose how much to withdraw. Those who do not take the whole loan-to-value can make further withdrawals.

The interest rate of 6.08% monthly is fixed for life and interest payments are subject to a £25 minimum. Clients do not have to choose a term to pay the interest and can stop free of charge at any time. On further withdrawals rates are fixed on the rate applicable then.