An interesting new report has revealed that a rising number of UK adults are struggling to purchase a home. This in turn is causing them poor levels of financial wellness, according to the Momentum UK Household Financial Wellness Index.
The Index was conducted by the University of Bristol’s Personal Finance Research Centre and is the first of its kind to assess the financial wellness of the UK.
Poor planning
Financial wellness is split between homeowners and non-homeowner, with tenants suffering down to a lack of assets and poor long-term planning.
Those with a mortgage average 71/100 Index points, with those owning a property outright gaining 74/100. However, those in rental accommodation average financial wellness points of 62/100 for private renters and Housing Association tenants and 60/100 for Local Authority.
The lack of substantial difference in score between private renters and those in social housing shows that despite their relatively greater incomes, private tenants are being made financially unstable by their living arrangement.
Spending
The Office for National Statistics’ Economic Review suggests that renters spend almost 20% of their income on rent. This figure rises to 25% for private renters, rising by 10% in the last three decades.
These costs are evidenced in the Index’s findings, which show that renters are half as likely than homeowners to suggest that that their income can cover their monthly outgoings. In addition, renters were revealed to be half as likely to say they are comfortable with their standard of living.
What’s more, double the amount of renters said that they had missed a minimum repayment on their credit card, loan or other debt during the past twelve months.
Financial stability of British renters revealed
Hardship
Ferdi Van Heerden, CEO of Momentum UK, noted, ‘the financial hardships being faced by renters are making it impossible for them to build the deposit necessary to get their foot on the property ladder. Soon we will see a situation where only those who already own or inherit property will be able to own a home.’[1]
‘Private renting is on the increase from 6% of the population in 1988 to 16% in 2014. By contrast, the prevalence of mortgaged home ownership among under 40’s is lower than in 1977, when the Right to Buy was introduced to address just such an issue,’ he continued.[1]
Long-term impact
Renters were also found to be more likely to see their financial prospects hit due to the effect that renting has on their overall income. According to the Index, tenants are twice as likely to have no savings, insurance or pensions in place. In addition, they are twice as likely as homeowners to have nothing in place for their retirement.
Mr van Heerden concluded by saying, ‘if we do not address the UK’s rental trap, we are effectively creating a lasting social divide between the haves and have nots. We cannot simply assume that the current system will resolve this issue and action must be taken to address this.’[1]
[1] http://www.propertyreporter.co.uk/landlords/the-rental-trap-financial-wellness-of-uk-renters-revealed.html