- Financial wellbeing
Everyone needs a roof over their head, but the cost of putting and keeping it there can be one of the biggest monthly costs for employees.
According to research from Close Brothers, the average amount of income spent on property by UK employees is 37 per cent, with more than a quarter (27 per cent) spending over 50 per cent on housing costs.
Given how much of an individual’s income goes on property, it is a crucial, but often overlooked aspect of financial wellbeing. Fortunately, according to Close Brother’s Financial Wellbeing Index, it is also a topic that both employees and employers feel reasonably confident about.
The Financial Wellbeing Index measures how employees feel about their finances across eight different categories: money worries, budgeting and planning, debt, protection, savings and investments, retirement, properties and mortgages, and tax. Each category is scored out of 100, and there is also an overall index score, based on the average of each category score.
For properties and mortgages, employees have a score of 61.2. This is the second- highest category score in the index, with only debt scoring higher at 67.7. The overall employee Index score is 53.6.
This shows that employees are generally confident about their understanding of and confidence in property, particularly when compared to other aspects of financial wellbeing. Only 13 per cent of respondents said that their housing costs are unaffordable, and 67 per cent feel comfortable that they can manage their outgoings in this area.
The Financial Wellbeing Index also has an equivalent employer scores for each category, which measures business’ perceptions of employee wellbeing. As with the employee index, each category is rated out of 100 and an overall score is generated using the average of the category scores. Employers over-estimate employees’ confidence levels when it comes to properties and mortgages, with a score of 71.
The 9.8 point gap between employers’ and employees’ scores is one of the narrowest in the index, suggesting that employers have a reasonably accurate picture of employees’ financial confidence when it comes to property matters.
While overall indications are good, parts of the workforce are still struggling. This is particularly true when it comes to buying a first property. Although 65 per cent of non-home-owners want to get onto the property ladder, that is still a pipe dream for 47 per cent of them, who believe they will never be able to do so. Employees also lack confidence about how to realise their ambition to own a property, with 39 per cent saying that they don’t know where to start.
Changes to interest rates is another area where employees feel exposed. Around two-thirds (63 per cent) said that an increase to interest rates would affect their housing costs, and 65 per cent of those who said this have a variable rate mortgage.
Millennials feel particularly vulnerable when it comes to managing financial wellbeing around housing costs. In this group, 19 per cent said that their felt their housing costs were unaffordable, and 76 per cent said that an interest rate increase would affect their housing costs. They are also wary about getting on the property ladder, with 20 per cent saying that they have no desire to get on it in the future.
There is still plenty that employers can do to support employees with properties and mortgages, to improve their score in this category. Here are just three ways financial guidance or advice can help:
Help younger employees plan to get onto the property ladder. Millennials have been particularly hard-hit by property price rises in recent years. According to the FCA, in 2017 62 per cent of homeowners under 35 required help from the ‘bank of mum and dad’ to fund a first property. There are also other routes to help: employees can also save towards a property using tax-efficient products such as Lifetime or Help to Buy ISAs, as well as creating short, medium and long-term financial goals to help them build up towards property ownership over time.
Make sure employees have the right mortgage deal. For those who already have a mortgage, it’s very easy to slip onto a variable rate arrangement at the end of a fixed-term deal. While interest rates have remained historically low, that may not have been too much of an issue for borrowers. However, as economic uncertainty increases in the UK, the comfort factor of being protected from any future interest rate rises may become even more valuable.
Help employees think about property in retirement. According to research from Moneyfacts, over half of mortgages are now being sold over a 40-year term. That means employees taking out a mortgage beyond the age of 30 could be making mortgage payments well into retirement and will need to take this into account in their longer-term financial planning. And while investing in bricks and mortar certainly provides homeowners with an asset they can sell in the future, the old saying that ‘my property is my pension’ can be fraught with risk. Even retired workers will need to somewhere to live, so may not be able to realise as much cash from selling their property as might be imagined.
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