Weekly Round-Up, 6th July 2018
Many homeowners ready to take their second step on the property ladder now rely on financial help from family and friends to help make the jump from their first home, according to the latest Lloyds Bank Second Steppers report. More Second Steppers are having to borrow from family and friends to trade up the property ladder, with one third (33%, up from 27% last year) saying that they require financial support from their mum and dad, grandparents or friends.
The average amount that Second Steppers expect to borrow has also increased by over £4,000 (£4,219) compared to last year to £25,450, despite 57% having already received financial support for their first property worth an average of £19,824. In addition, nearly three-fifths (58%) say they wouldn’t be able to make their next move up the home-owning ladder without generous family and friends coming to the rescue.
As well as using equity from their current property (62%) and personal savings (39%), over one in five (22%) second steppers will mainly look to borrow from the Bank of Mum and Dad to raise the deposit required to fund their next move. Grandparents will also be asked to support (13%) and even friends (6%). Where second steppers look to borrow from the Bank of Mum and Dad, parents have had to make sacrifices. Over half (54%) will raid their own savings to provide help and just under half (48%) of these plan to downsize to release more equity to support their kids. Two-fifths also plan to remortgage to raise money to give to their children so they can trade up the property ladder. Just under a third (29%) also said they will sell another property to help and nearly a fifth (19%) said they would sacrifice holidays or hobbies in order to support their offspring.
But movers are also planning to make sacrifices to sell their first home and achieve their second property aims. Almost three in ten (28%) Second Steppers have said that they will have fewer children than originally planned due to the challenges they have faced whilst trying to make the next move. This is up by 16% from last year. More Second Steppers are also delaying having children due to the difficulties faced. Although today’s Second Steppers need to borrow more from family and friends, two in five (40%) say that conditions have improved since last year. There has also been an increase in the number of Second Steppers who are saving to support their next move, with 67% saying that they are making regular contributions to their savings, a slight increase from last year (61%). The number of Second Steppers overpaying their mortgage to help increase equity has also increased from 41% to 47%.
Remortgage Leads The Way
According to the latest figures from UK Finance, the trade body that represents Banks in the UK, estimated gross mortgage lending for the total market in May to be £22.2bn, 8.8 per cent higher than a year earlier. The number of mortgage approvals by the main high street banks in May has also risen, increasing by 3 per cent compared to the same month a year earlier.
As in April, increased approval numbers were driven by remortgaging, some 18 per cent more than a year earlier. In contrast, approvals for house purchase were 3.8 per cent lower than the same period a year earlier. May’s increase in mortgage approvals was driven by strong growth in remortgaging, as a large number of fixed-term mortgages came to an end and homeowners took advantage of a competitive market to shop around for attractive deals. Increased efforts by lenders to contact their customers before their current mortgage deal expires have also contributed to this rise.
Credit card spending was 2.3 per cent higher than a year earlier, with outstanding levels of card borrowing having grown by 5.7 per cent over the year. The total of 193 million credit card purchases in May was well above the previous 12 month average of 181 million, reflecting increased retail sales. Outstanding overdraft borrowing was 3.9 per cent lower compared to the same time last year. The modest growth in card spending reflected a boost to retail sales amid the good weather over recent bank holidays and the Royal Wedding celebrations.
Personal deposits grew by 1.6 per cent in the last 12 months, although this was a lower annual rate than seen historically. Deposits held in instant access accounts were 4.4 per cent higher than a year earlier reflecting a mixed picture of the economy as household incomes continue to be squeezed. This may explain the growth of deposits held in instant access accounts, with consumers increasingly choosing to keep their money close to hand.
To mark the 70th anniversary of the NHS, Aegon asked a panel of 700 consumers from age 18 to 64 to reflect on aspects of life that might influence their financial well-being at age 70 such as work, health and caring responsibilities. This year the NHS joins an increasing number of people who are celebrating their 70th birthdays. And just as the NHS is facing up to future challenges, so will individuals if they don’t plan beyond their 70th birthday to ensure they have all they need to be financially secure in later life.
The survey revealed that more than one in four people (26.9%) think they will be working either full or part time at age 70, with women (24.5%) slightly less likely than men (27.5%) to think this despite them on average living longer. This suggests a clear move away from the previous practice of women retiring at 60 and men at 65.
Working into later life is only possible for those who remain in good health, and it’s positive to see that 45.8% of people believe they will still be fit and healthy enough to work if they choose to at the age of 70 although it’s risky to have no fall back plan should health deteriorate. In general the survey revealed that most people envisage being physically and mentally fit and able at the age of 70.
Nearly one fifth of people (19.5%) think that they will still be financially supporting family when they are 70. And an additional 21.8% were unsure. This suggests the bank of mum and dad will be a feature of an increasing number of septuagenarians.
The Association of British Insurers (ABI) has revealed that the number of travel insurance claims made in 2017 increased by 30,000 year-on-year to 510,000, costing £385 million and amounted to one claim every minute throughout the year. This is the highest amount paid since the £455 million Icelandic ash cloud payouts of 2010 and was largely driven by a significant rise in cancellation claims.
After a slight (£2 million) increase, medical expenses still make up a majority of the £385 million claims paid, despite an 11% increase in the value of claims for trip cancellations from £130 million to £145 million. Medical expense continue to be the most expensive type of claim, with an average of nearly £1,300 and many claims climbing to the tens of thousands of pounds. As an example, a millennial’s average medical claim was three times more expensive than their average non-medical claim (£261 compared with £812).
The significant increase in cancellation claims was driven by notable airline disruption, restrictive bad weather at home and abroad, as well as the cost of the average family holiday increasing by more than £500 in 2017 according to some estimates. This further highlights the importance of buying your travel insurance as soon as you book your holiday – not at the last minute.