The number of financially vulnerable households in Great Britain has trebled in the past five years with 21% now classed as financially vulnerable and only 8% deemed financially secure – more than half the number in 2007.
This finding came from a global study of financial consumer sentiment – including Great Britain, France, Germany and a number of other European countries.
When asked to choose the most important factors when assessing their future financial situation British households said they were worried about the rising cost of living, the level of income they receive from work, the level of their savings, and job security.
Genworth believe this combination of concerns is directly affecting the UK housing market given households are struggling with the cost of everyday life and are less confident about their financial futures. In turn this means they are not able to save enough to find the large deposits required today by lenders in order to purchase a first home or move up the property ladder.
The Genworth Index, by the global mortgage insurer – Genworth – measures consumer financial security and vulnerability across Europe and the world. The report – based on a survey of 13,000 consumers in 20 countries – shows that households in Great Britain are balanced more towards financially vulnerability rather than security since the last 2010 iteration of the Index; however when compared to other European countries, GB maintains its European placing.
GB registered an ‘Index Score’ of 39 on the scale of financial security placing it fifth on the European table ahead of both France and Germany but lagging behind the Nordic countries. Britain’s 8% of financially secure households is better than those of Germany (just 3%), France (7%) and Ireland (6%). GB also has less financially vulnerable household than both Germany (22%) and France (26%); Greece has the most number with 80% of all households in the financially vulnerable category.
Overall Great Britain is just one point down on its 2010 ‘Index Score’ of 40 however most European countries have seen greater drops than this. The GB score is however a significant 21 points down on its 60 in 2007. In 2012 GB does fall some way short of Norway (71) and Sweden (67). At the bottom of the European table are Italy (11), Portugal (6) and Greece (1).
The Genworth Index also highlights a large degree of pessimism from GB households regarding whether their financial prospects will improve over the next 12 months. 26% of GB households expect their financial situation to get worse during this time period while only 18% think it will improve.
Angel Mas, president– mortgage insurance Europe at Genworth Financial, said: “While Britain is holding its own in terms of its Index Score position within Europe, beating both France and Germany, there is still a worrying trend towards greater financial vulnerability with three times more GB households in this category than five years ago.
“The number of households who believe their future financial prospects will get better is also particularly low with just 18% anticipating any improvement in the next 12 months. This is clearly down to the high cost of living they are currently experiencing, low wage growth, its impact on saving levels, and worries about job security due to high unemployment and the ongoing threat of a triple-dip recession.
“Due to the increased pressure faced by households in meeting increased cost of living expenses and the ongoing impact on savings levels, it is perhaps not surprising that we have seen historically low numbers of first-time buyer and ’second stepper’ movers recently. With a lower number of high loan-to-value mortgage options available, and the pressure on finances, households have been unable to save the large deposits required by lenders in order to access loans and get on the property ladder.
“Genworth believes a greater number of 90/95% LTV mortgage options could be developed were lenders to utilise mortgage insurance in order to help mitigate the risk they perceive at the high LTV levels. This would mean prospective buyers and movers only needed a lower deposit/equity level to secure a mortgage which in turn would boost overall lending levels and help kick-start the property market.
“As the Index shows however, GB households are at best cautious about their future, and at worst, pessimistic, which means they are firstly unable to save at the levels required and are less likely to consider bigger ticket purchases. For those who are in a position to act with a lower deposit, greater use of mortgage insurance would ensure a greater level of lending at these levels could be achieved.”