Financial confidence crisis hits UK as 20% find current mortgage payments unaffordable

30% have or plan to use pension savings to pay off their mortgage.

Related topics:  Later Life,  Mortgages
Rozi Jones | Editor, Barcadia Media Limited
9th February 2024
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"Mortgage repayment pressures mean many households are planning to use their pensions to pay off mortgage debt, possibly at the expense of a comfortable retirement."

Nearly half (46%) of people do not feel confident about their finances for the future, an increase from 35% in 2021, according to new research by the Equity Release Council.

Its biannual study of 5,000 UK adults – supported by Canada Life and Equity Release Supermarket - examines how people are coping in the post-pandemic environment of rising interest rates, inflation and economic uncertainty.

It reveals that nearly three in five (57%) UK adults say their financial situation has got worse over the last year, with only 14% feeling their finances have improved.

Loss of financial confidence hits older age groups the hardest

The nation’s loss of confidence has hit older age groups the hardest, as people reassess their retirement prospects in the face of economic and political uncertainty.

People aged 65 to 74 have been the worst impacted. Fewer than one in five (18%) lacked confidence about their future finances in 2021; that percentage has since soared to 39%.

The 55 to 64 age group and those aged 75 and over have also experienced a more drastic loss of confidence since 2021, compared with the national average. The percentage of adults aged 55 to 64 who are lacking confidence about their future finances has jumped from 37% to 51%, while almost one in four people aged 75 and over feel the same (23%), up from 11%.

Mortgage repayment pressures likely to add to pensions pain

The Council’s study explores people’s personal finance pressure points, at a time when the 5.25% base rate means many homeowners face significantly higher costs than when they last remortgaged.

Its findings reveal that one in five (20%) of the UK’s 8.5m mortgaged homeowners say they find their current loan “unaffordable”, equivalent to 1.7m households.

Almost one in three (30%) say they already have or plan to use some of their pension savings to pay off their mortgage, with single homeowners even more likely to do so (33%).

These mortgage pressures risk adding to people’s savings shortfalls in later life, with many already concerned they won’t be able to afford a comfortable retirement.

More than one in three homeowners (37%) say they have struggled to build up enough pension savings to be confident about their living standards in retirement. Similarly, 41% are worried about using up their pension savings too quickly.

In both cases, women are grappling with more widespread concerns: 44% are worried about their pensions being used up too quickly (vs. 39% of men) while 40% have struggled to build up enough savings to feel confident about retirement (vs. 35% of men).

Jim Boyd, CEO of the Equity Release Council, commented: “The deterioration of confidence in our future finances since the Covid pandemic is shocking, particularly among those about to retire. More people are having to make hard choices which will potentially have a long-term impact on their financial security.

“Mortgage repayment pressures mean many households are planning to use their pensions to pay off mortgage debt, possibly at the expense of a comfortable retirement. While others are struggling to pay these higher mortgage costs during their working lives which is limiting the amount they can save into their pension. Although many hope to retire debt-free with a healthy pension pot, we mustn’t forget the millions who can’t save or pay down their mortgages and encourage them to consider all their options including property wealth.

“I am concerned that homeowners and their families might be struggling to get by when the wealth locked up in their properties could fund far better lives in retirement. Anyone lucky enough to own a home should give careful thought to how lifetime and later life mortgages can support their finances, and not overlook options that are literally on their doorstep.”

Tom Evans, MD of retirement at Canada Life, said: “It’s understandable why confidence levels around finances have taken a huge knock over the past few years. Many people will have mapped out their retirement, but thanks to higher living costs, including increased mortgage repayments, those plans may well have gone out the window. In fact, our own data shows that paying off an existing mortgage was the top reason for releasing equity last year.

“Whilst home ownership can provide some kind of cushion and financial security, having to pay off a mortgage with funds from a pension means being caught between a rock and a hard place; balancing the tricky act of clearing debts today and securing income for retirement in the future.

“It’s important that those yet to make plans for their retirement, start doing so sooner rather than later. As the current economic environment shows having contingency plans in place is vital.

“Having to plan alone might feel very isolating. It’s worth remembering that there are many resources including financial guidance, while an independent financial adviser can help you understand all your options and support you with planning holistically for your retirement.”

Mark Gregory, founder and CEO at Equity Release Supermarket, added: “More homeowners approaching the age of 55 are increasingly considering equity release, in part due to the higher costs of living and the need to release equity tied up within the household to facilitate this. Yet, approximately 1 in 4 people still believe that equity release should be treated as a last resort. However, this is mainly derived from a general lack of understanding, limited knowledge of mortgages available in later life and information around equity release products across the market, as opposed to the opportunity it presents.

“With tools now available such as smartER™ consumers can gain a vast amount of information, as well as real-time deals that match their personalised circumstances so that they can understand their individual scenario. Providing this live data enables consumers to take control, understand how much they can release and have the flexibility to research options in their own time before speaking to an Adviser.

“We understand the value this holds with consumers, given that there has been a sharp rise in the amount of people now using online tools for research purposes. We believe acceleration is down to trust, accuracy, and reliability. We know that consumers feel more comfortable having the information literally available at their fingertips and the ability to engage in product comparison sites prior to making a financial decision. Hence, equity release is no different. Passing initial control to the consumer, similarly to the mortgage market, will allow for greater consumer confidence and independence within the sector.”

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