One in five UK homeowners feeling financially “uncomfortable”

Why are so many homeowners struggling financially?

Written in line with our editorial policy.

A recent survey has revealed that nearly one in five UK homeowners consider their financial situation “uncomfortable”, highlighting a growing concern among many: being “asset rich, cash poor”. 

While owning property can provide a significant sense of security, it does not always translate to sufficient income, especially for those approaching or already in retirement. 

According to FT Adviser, the Scottish Friendly 2024 Family Finance Tracker surveyed 2,600 adults who own their home outright. The data found that 18 per cent view their financial position as “uncomfortable”, with 7% going so far as to describe their financial position as “very uncomfortable”.

This financial strain may be linked to a trend where individuals focus on paying off their mortgage as a priority, often at the expense of building savings or a substantial pension pot. This approach can potentially leave people short of liquid funds to cover everyday expenses or unexpected costs.

Despite the majority of respondents saying they do feel financially comfortable, even within this group, 40% describe their financial situation as merely “somewhat comfortable.”

The growing reality of ‘asset rich, cash poor’

For many, their property is their most valuable asset, often worth hundreds of thousands of pounds. However, many retirees find themselves asset-rich but struggling with limited cash flow to support their daily needs, healthcare costs or lifestyle aspirations.

For homeowners in this position, integrating their property wealth into their financial planning can be a viable solution. There are, however, some practical options for accessing the value locked in your home to improve your financial situation.

Property wealth solutions for homeowners

Homeowners facing financial pressures have several options to consider when incorporating property wealth into their retirement plans. 

Downsizing can free up funds by moving to a less expensive home. This may be smaller than the one you currently live in, or in a less expensive area. EIther way, it’s often one of the first options to consider when looking to turn property wealth into cash. Alternatively, remortgaging may be a way to access a lump sum or reduce monthly payments.

Where downsizing isn’t possible, or where it’s just not something you want to do, equity release is a potential alternative. This allows you access to cash from your home equity without requiring monthly repayments, although voluntary payments are an option. 

A similar option is a retirement interest-only mortgage (RIO). This enables eligible older homeowners to borrow against their property, making interest-only payments while leaving the loan balance to be repaid when the home is sold later on.

The idea of using property to supplement retirement income via equity release or a RIO may have been seen as a last resort in the past. However, in recent years they have increasingly become more mainstream solutions for managing the financial realities of later life.

Getting help with important decisions

However you are considering accessing your property wealth, options should be carefully considered. Decisions like equity release can have significant implications for inheritance, for example, and may affect your entitlement to some means-tested state benefits. It makes seeking the guidance of a specialist adviser paramount.

But with careful planning and good advice, accessing property wealth can potentially transform financial challenges into opportunities, ensuring stability and peace of mind during retirement. 

Source:

Nearly one in five UK homeowners consider their financial situation “uncomfortable”: Fifth of homeowners in ‘uncomfortable’ financial position. FT Adviser. Accessed 16 December 2024.

About Clare Yates. With over a decade’s experience writing about later life financial planning, Clare offers a wealth of knowledge about equity release, pension annuities, wills, LPAs and more. When she isn’t writing, Clare likes to spend her time baking and going on walks with her husband, two children and their rescue dog. Follow Clare on LinkedIn