DEADLINE TO the BREADLINE report 2014
on the BRINK.
Our latest report shows that if a household’s income suffers an
unexpected shock and suddenly stops, people in the UK would
have just 29 days, on average, before their money would run out.
This is a slight improvement since our last report, yet it shows the
stark reality that many people across the UK are facing. With new
financial pressures gathering on the horizon, now is the time for
UK households to think about improving their financial security
and helping to protect their future.
2
deadline to the breadline report 2014
contents.
1.
Employment, earnings and
discretionary income.
6
savings.
10
deadline to the breadline.
16
4.
mortgages and rent –
diverging circumstances.
20
5.
increasing pressures
facing households.
28
methodology.
34
2.
3.
6.
deadline to the breadline report 2014
Foreword.
Welcome to our fourth Deadline to the Breadline report.
In order to understand how the UK’s economic
outlook is affecting the financial stability of the
average household, this fourth edition of our
Deadline to the Breadline report again looks at
how prepared UK families are for a sudden
shock to their income.
As before, we have measured how long a
household’s current savings would sustain their
current levels of spending before they could be
on the breadline. In this latest report, we have
found that the average household in the UK
now has a Deadline to the Breadline of 29 days,
which is up slightly from 26 days earlier in 2014.
Although this improvement is certainly welcome,
it is largely because savings buffers have
increased since these figures were last calculated
in November 2013. Whilst this has helped extend
the overall UK deadline, the harsh reality is that
many households are still only weeks away
from becoming reliant upon friends, family and
the state for support following a sudden loss of
income. In addition, this deadline is much shorter
than most households think, with the average
household believing that they could last 77 days
after losing their usual source of income – more
than two and a half times the actual figure. As a
result, even though many people admit to being
concerned about the rising cost of living and
the potential for falling incomes over the next 12
months, the proportion of households with no
strategy in place to cope with financial hardship
has actually increased to 36%, compared to 35%
in our previous report.
With next year’s general election on the
horizon and housing pressures forming one
of the primary concerns for families, we have
chosen to include a new dimension in this
edition of Deadline to the Breadline looking
at the different levels of risk facing different
types of households. Worryingly households
with a mortgage have a deadline of just 22
days compared to just two days for households
living in private rented accommodation.
Households living in rented Local Authority or
Housing Association properties report having
no savings on average, resulting in a deadline
of zero, meaning they could potentially be on
the breadline tomorrow.
DUNCAN FINCH,
Executive managing director, insurance
Legal & General Assurance Society
At the same time, new economic challenges are
fast approaching. The majority of households
expect interest rates to rise either by the end of
2014 or in 2015, which is likely to put additional
strain on family finances. In fact, a 2% rise in
mortgage interest rates would move the typical
household with a mortgage one day closer
to the breadline. Even a 1% rise would mean
households would no longer be able to save each
month and would have to change their spending
habits, or rely on existing savings, to make ends
meet. Yet many don’t know how. According to
our research, the proportion of people who don’t
know what they would cut back on to cope with
a shock to their finances actually rose to 26% in
July – 5% higher than in our previous report.
Sadly, ignoring these risks won’t make them
go away. Whilst it is heartening to see an
improvement in our overall deadline figure, this
is clearly not the time to be burying our heads
in the sand. Talk of the economic recovery and
an increase in consumer confidence could lead
many people to revert back to their old habits
when now really is the time to think about
protecting their future. With new financial
pressures already gathering on the horizon,
UK households need to take urgent action now
– not only to protect their current lifestyle, but
also to help secure their financial security for
the future.
3
4
deadline to the breadline report 2014
Executive Summary.
Income shocks can hit households hard and many are not well prepared
to deal with the consequences.
This report investigates how long
people in the UK could survive
financially if all they had to rely on
was their savings or minimal state
benefits, such as statutory sick pay –
their ‘Deadline to the Breadline’.
This Legal & General research which
has been supported by analysis from
the Centre for Economics and Business
Research (Cebr), draws on a July 2014
survey of 4,886 people weighted to
represent the UK adult population.
OUR FINDINGS
29
DAYS
DEADLINE TO THE BREADLINE.
The average household in the UK now has
a Deadline to the Breadline of 29 days, up
from 26 days in November 2013.
This rise is because savings buffers have generally
increased, particularly for households with younger
primary income earners (18-24 years) whose deadlines
has increased by 90%. This means that the typical
household’s savings will last just under one month
before the household is left reliant upon friends and
family and state support. This is less than half of
household’s optimistic expectations that their
savings could last for 77 days.
deadline to the breadline report 2014
DAYS TO DEADLINE
BY REGION.
working families.
4
1
Days
For the majority of working
age families (18-64 year olds)
the Deadline has increased
slightly to 14 days.
IMPACT OF RISING MORTGAGE
INTEREST RATES
2% rise
would move the typical
household with a mortgage one day closer to
the breadline.
1% rise
83
DAYS
would mean households
would no longer be able to save each month and
would have to change their spending habits, or
rely on existing savings, to make ends meet.
IT WON’T HAPPEN TO ME!
Yet 50% of people
know someone who
has suffered a serious
illness or injury.
LONGEST
GREATER
LONDON
7
DAYS
SHORTEST
WALES
3 out 4 households are worried
about the rising cost of living
60% of households
12 years 9 months.
Households are saving £177 per month
on average but it would take almost 12 years
9 months to save one years average UK,
gross salary of £27,000*.
*Office National Statistics Annual Hours and Earnings
Survey 2013
either don’t know what to expect or expect
nothing from the government in terms of
financial help for their family if they fell ill.
79% had no idea or expected no government
support in the event of their death.
This highlights why it is crucial to help
consumers understand the importance of
doing something now to improve their
financial security.
DEADLINE TO THE BREADLINE BY
HOUSEHOLD TYPE:
Outright
homeowner
426s
Day
Homeowner
with mortgage
2
2
Days
Privately
rented
2
Days
Local Authority/
Housing
Association
0
Days
Households are slightly more positive – they now expect monthly
discretionary incomes to rise by £11.31 over the next 12 months,
while their views of job security have improved slightly compared to
2 months ago.
The average UK
household has
£1,205
in savings.
36%
of households have no
strategy in place to cope
with financial hardship
compared to 35% in
November 2013.
5
6
deadline to the breadline report 2014
1.
employment,
earnings and
discretionary
income.
deadline to the breadline report 2014
The UK economy is expected to grow by 3.0% over the
course of 2014, the strongest annual growth since the
financial crisis began in late 2007.
However, business and consumer confidence
have levelled off in recent months after reaching
the highest levels since the recent crisis, aided by
a strong employment market and a pickup in the
housing market. The unemployment rate fell to
6.4% in the second quarter of this year, reflecting
employment growth of just over 820,000 in the last
twelve months. However, there remains a significant
gap in the employment market – there are over
1.3 million people in the UK who would like to
work more hours than they currently do1, while
earnings growth has been persistently weak.
Without sustained improvements in these areas,
in combination with reduced unemployment,
households face a struggle when attempting to
strengthen their financial positions.
Figure 1 UK unemployment rate
9%
8%
7%
6%
5%
4%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Source: Office for National Statistics, Cebr forecast
1.3 million people in the UK would
like to work more hours than they
currently do in order to make
ends meet.
ONS labour market statistics, August 2014 release. The figure is the number of persons who are working part-time because they could not find
full-time employment.
1
7
8
deadline to the breadline report 2014
A more positive outlook
Households feel marginally more positive about
their employment prospects compared with a year
ago, with 18% feeling more optimistic about their
job prospects than a year ago, compared to 16% who
felt less optimistic, and 67% reporting no change,
as Figure 2 illustrates. This increase in workers’
perceptions of their employment prospects has been
accompanied by gradual increases in the labour force
participation rate (defined as the proportion of
persons 16+ either in employment, or actively looking
for work). This measure reached 63.8% in the second
quarter of 2014, supported by rises among all age
groups when compared to a year ago. The number of
younger people (aged 18-24 age group) rose strongly,
up 0.7% over the year, reflecting the general trend of
increasing confidence in the opportunities available
within the employment market.
Figure 2 employment prospects, percentage of households
80%
70%
78%
67%
67%
60%
50%
40%
30%
20%
16%
14%
17%
16%
8%
10%
0%
18%
No change
June 2013
Improved
November 2013
Worsened
July 2014
Source: Legal & General Deadline to the Breadline research via TNS Global
AND potential rise in income
With unemployment having sharply declined, the
ability of workers to negotiate for higher pay is
expected to increase in the coming months. However,
income growth has remained weak despite the rapid
increase in jobs, remaining well below the rate of
inflation. This continues the pattern of falling real
incomes seen since 2008. Looking further ahead,
with the UK economy’s recovery continuing and
unemployment expected to fall further, Cebr
forecasts annual growth in average earnings will
exceed consumer price index inflation in 2015, as
shown in Figure 3. This would represent the first
rise in real incomes (on an annual basis) since 2007.
deadline to the breadline report 2014
Figure 3 Average earnings and consumer price index, annual percentage change
6%
5%
4%
3%
2%
1%
0%
-1%
2001
2002
2003
2004
Average Earnings
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Consumer Price Inflation (CPI)
Source: ONS, Cebr forecast
These falling real earnings are reflected in the
discretionary incomes of households, which
have declined compared to last year. In 2014 on
average, households reported that their monthly
discretionary incomes – the income which remains
after taxes and essential spending – had fallen
£20.43 compared to 12 months ago. This fall is
steeper than households’ expectations reported
in July 2013, which were consistent with a £7.54
decline during 2014. However, Figure 4 illustrates
that households are more optimistic about 2015,
expecting a £11.31 rise in their monthly discretionary
incomes, equivalent to a 2.0% rise.
Figure 4 monthly discretionary income,
£ per average household2
590
£585.75
585
580
£576.63
575
570
£565.32
565
560
555
2013
2014
2015
Source: Legal & General Deadline to the Breadline research via TNS Global
These estimates are based on responses to the question, “How much of your monthly household income is left after paying tax, national insurance,
housing costs, loan repayments and bills?”
2
9
10
deadline to the breadline report 2014
2.
SAVINGS.
savings.
£1,205
average UK savings.
11
deadline to the breadline report 2014
a third of people still have no safety net.
Savings are a key aspect of economic activity,
representing the resources available to draw
upon and acting as a buffer during times of crisis.
Following the financial crisis and ensuing credit
crunch in 2007-2008, households responded by
increasing the amount they save, seen in the sharp
increase in household savings pre- and post-Q1
2008. This is highlighted in Figure 5 below, which
shows how much UK households have saved in
gross terms – i.e. excluding debt repayments – on a
quarterly basis.
double the quarterly average recorded between
2001 and 2008 Q1 (£7.5 billion). However, there
is evidence that households are beginning to
return to old habits, with saving as a proportion of
disposable income falling significantly compared
to the period immediately after the financial crisis.
Gross household saving in the first quarter of 2014
was equivalent to 4.9% of disposable incomes,
slightly higher than in Q4 2013, but representing a
large drop compared to a peak of 8.6% in Q2 2009.
This is consistent with the increase in consumer
confidence, returning to its early 2007 levels and
relaxing consumers’ purse strings.
In the first quarter of 2014, households saved
approximately £14.2 billion, which was almost
Figure 5 Quarterly gross household savings, £’s billions (current prices) and
percentage of total disposable income
10
25,000
9
20,000
8
7
6
15,000
5
10,000
4
3
2
5,000
1
0
Gross savings, £ billion (left axis)
2014 Q1
2013 Q3
2012 Q1
2012 Q3
2011 Q1
2011 Q3
2010 Q1
2010 Q3
2009 Q1
2009 Q3
2008 Q1
2008 Q3
2007 Q1
2007 Q3
2006 Q1
2006 Q3
2005 Q1
2005 Q3
2004 Q1
2004 Q3
2003 Q1
2003 Q3
2002 Q1
2002 Q3
2002 Q1
2001 Q3
0
Savings ratio
Source: Office for National Statistics
12
deadline to the breadline report 2014
savings are still down
Figure 6 changes in monthly savings of average
household, £
Rock-bottom interest rates, coupled with
falling real incomes as explored in the
previous section, offer further insight as
to why households may be choosing to
save less of their incomes. Nevertheless,
households report that they are still saving
£177 each month, however as highlighted in
Figure 6, households are saving £8.12 less
per month on average in 2014 compared
with last year, but are expecting to save
marginally more – £1.96 per month – in 2015.
The improvement in households’ perceptions
of their employment prospects, together
with their expected growth in discretionary
incomes, are consistent with these
expectations for increased monthly savings.
186
£184.96
184
182
180
£178.80
178
£176.84
176
174
172
2013
2014
2015
Source: Legal & General Deadline to the Breadline research via TNS Global
Other than savings, household income generally
finds its way into one of three main categories;
tax payments, essential spending and discretionary
spending. Figure 7 illustrates the relative size of
each of these elements for the typical (median)
UK household.3
Essential spending, which includes housing costs
such as rent and mortgage payments, utility bills
and loan repayments, makes up by far the largest
proportion of expenditure, at 69%. Tax payments
account for around 20% of pre-tax income, while
discretionary spending represents 10%. This leaves
just 1% of pre-tax income set aside as savings for
the typical UK household.
Figure 7 distribution of household pre-tax income
1%
10%
20%
KEY
Tax
Essential spending
Saving
Discretionary spending
69%
Source: Legal & General Deadline to the Breadline research via TNS Global
Median figures are used here to remove the distortionary effects of high savings figures, particularly associated with high income earners – by doing so
these figures are likely to be more representative of a typical UK household. The median can be understood as the middle value in a sequence of values
ordered from largest to smallest.
3
deadline to the breadline report 2014
older earners have higher savings
The amount a household is able to save tends to
increase with earnings, which in turn tend to increase
with age. Figure 8 demonstrates how households’
mean savings increase with the age of the primary
income earner. Households with a primary income
earner aged 65 or over have, on average, £14,643
more held in savings and investments compared
to a household where the primary income earner is
aged 18-24. The average UK household has £1,205
in savings. This is an increase of £195 compared to
our previous survey. The differences between the
mean and median figures highlight the distortionary
effects which high savers have on the simple
average. The significantly lower median figures
indicate that a high proportion of households have
very little savings, while a small proportion have a
very large amount of savings.
Figure 8 Household savings and investments by age of primary income earner,
£ averages as of November 2013 – July 2014
25,000
£21,203
20,000
£14,210
15,000
£10,884 £11,091
£9,407
10,000
£6,561
£6,323
£7,407
5,000
£640
£591
£442
£303
£1,769
£1,205
0
Age 18-24
Mean
Age 25-34
Age 35-44
Age 45-54
Age 55-64
Age 65+
UK
Median
Source: Legal & General Deadline to the Breadline research via TNS Global
Even though monthly savings have fallen this
year, households are still saving £177 each
month on average, while the proportion of
younger households (with primary income
earners aged 18 to 24) with no savings has
declined, supporting an increase in the typical
UK household’s Deadline.
13
14
deadline to the breadline report 2014
Figure 9 below sets out the proportion of
households, by age group, who report having no
savings. When taking into account all households,
the proportion with no savings (35%) has been
stable, when compared to the previous edition of
this survey.
However, there are significant variations between
age groups. Households with the youngest
primary earners (18-24 and 25-34 year olds) now
have more savings. However, households with
primary earners aged 45-54 and 55-64 saw the
proportion without savings rise over the same
period, by 0.6% and 1.2%s, respectively.
Employment market developments among
different age groups provide insights into the
developments over this period. Over-65s have
seen employment levels increase robustly, rising
by 8% over the last 12 months, whilst the number
of employed 18-24 year olds has grown by 6.1%
over the same period. Coupled with the number
of unemployed 18-24 year olds declining sharply
(by 22.1%), these improvements are consistent
with the observed decreases in the proportion of
households without any savings.
Figure 9 Percentage of UK households with no savings, by age of primary
income earner
50%
40%
43.3%
39.3%
34.5%
35.4%
39.3% 37.8%
39.8% 40.4%
35% 34.9%
30.2%
30%
31.4%
21% 20.4%
20%
10%
0%
Age 18-24
Age 25-34
June 2013-November 2013
Age 35-44
Age 45-54
Age 55-64
Age 65+
UK
November 2013-July 2014
Source: Legal & General Deadline to the Breadline research via TNS Global
deadline to the breadline report 2014
Wide variations in savings are evident across the UK
Figure 10 illustrates the mean and median levels of savings and investments held by households
in the UK’s constituent nations and regions. Greater London has by far the highest level of
average savings on both measures, whilst Wales has the lowest savings levels in the UK.
Figure 10 Mean and median UK household savings and investments,
by region, £’s
£13,833
Greater London
£4,157
£12,695
South East
£1,749
£10,852
East Midlands
£1,307
£11,238
West Midlands
£1,073
£11,381
East of England
Mean
£1,325
Median
£10,099
Yorkshire and
the Humber
£1,321
£9,653
Scotland
£670
£8,439
Northern Ireland
£705
£11,051
North West
£895
£11,055
South West
£970
£7,223
Wales
£238
£9,065
North East
£529
£11,091
UK Average
£1,205
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Source: Legal & General Deadline to the Breadline research via TNS Global
15
16
deadline to the breadline report 2014
3.
Deadline to
the Breadline.
UK households are still under pressure: earnings
growth has been weak and trailed inflation for
most of the past few years, while unemployment
remains elevated relative to the pre-crisis years.
To understand households’ financial stability and
preparedness for unforeseen events, the ‘Deadline
to the Breadline’ looks at household savings and
expenditure, to measure how long a household
could sustain their current levels of spending
before their savings are exhausted.
deadline to the breadline report 2014
Figure 11 illustrates that the average household in
the UK has a Deadline of 29 days. This means that
in just over four weeks of losing their usual sources
of income, unless they have some other strategy
to mitigate financial hardship, the average UK
household will be reliant upon state benefits and
friends and family alone for financial support
during their financial hardship.
Some of the drivers of these changes can be
understood through examining regional employment
market developments over the time period.
In comparison to the previous edition of this report,
the Deadline for the UK has increased by 3 days. This
is because savings buffers have generally increased,
particularly for households with younger primary
income earners (18-24 year olds) whose Deadline has
increased by 90%. This has helped extend the overall
UK deadline.
There are again substantial differences between
regions across the UK, however, with Greater
London still having the longest Deadline, estimated
at 83 days. Meanwhile Wales has the shortest
Deadline, suggesting that, following a loss of income,
the average Welsh household has savings which
would last just 7 days before the household became
dependent upon state benefits, or friends and
family, for financial support.
Unfortunately in Wales their Deadline has fallen by
4 days (equivalent to a 40.2% decrease), and they
have also experienced the weakest employment
performance of the UK’s regions. Between
November 2013 and June 2014 (the latest month for
which regional employment market statistics are
available), the number of employed persons fell by
2.7%, or 37,800.
Scotland saw the second-largest Deadline decline
to 11 days (relative to a 38.3% fall). Over the period
since November 2013, the number of unemployed
persons in Scotland has been broadly flat, even as
the UK’s unemployment rate dived by 0.8%. A similar
picture is observed in the West Midlands, which saw
the number of unemployed people fall by just 5.2%,
well below the UK average of 10.5%. These relatively
weaker regional employment statistics provide some
insight into the most recent Deadline movements.
Meanwhile, the three regions which saw the most
robust employment growth over this period – the
North East, the South West and Greater London –
all saw noticeable increases in their Deadlines.
Figure 11 Deadline to the breadline by region
June-November 2013
79 days
83 days
Greater London
November 2013-July 2014
44 days
41days
South East
30 days
34 days
Yorkshire and
the Humber
Scotland
24 days
33 days
East of England
East Midlands
31 days
42 days
40 days
30 days
West Midlands
16 days
South West
Northern Ireland
North East
27 days
15 days
24 days
North West
Yorkshire
and the Humber
North West
27 days
19 days
Northern Ireland
East Midlands
28 days
Scotland
17 days
11 days
16 days
North East
Wales
11 days
7 days
Wales
East of
England
West Midlands
Greater
London
26 days
29 days
UK Average
0
10
20
30
40
South East
50
60
70
80
90
South West
Source: Legal & General Deadline to the Breadline research via TNS Global
17
18
deadline to the breadline report 2014
There is also huge variation in the estimated Deadline
according to age, as shown in Figure 12. As the age of
the household’s primary income earner increases, the
households appear better prepared for an adverse
shock to their income. The over 65s’ Deadline has
improved further since the previous edition of this
report, reaching 379 days. This improvement has
been supported not only by increased levels of
savings, but also by increases in the state pension
and more people working past retirement age.
Amongst working age households (18-64s), there has
been a general improvement in financial security.
The Deadline for these households increased from
11 days to 14 days. This reflects the reduction
in households reporting having no savings, as
described within section 2. However, among the
55-64 age bracket, Deadlines fell slightly as the
proportion of households with no savings within
these age brackets increased. This may reflect an
improvement in consumer confidence throughout
the economy, driven in particular by the recovery
of the housing market. With households feeling
more secure and the value of their main asset rising,
households with a primary income earner within this
age bracket may feel more comfortable with dipping
into their savings to fund their spending, contributing
to a fall in their Deadlines.
Figure 12 Deadline to the breadline by age
10 days
Age 18-24
19 days
10 days
Age 25-34
14 days
7 days
Age 35-44
9 days
11 days
Age 45-54
7 days
57 days
Age 55-64
50 days
275 days
Age 65+
379 days
11 days
Age 18-64
14 days
0
50
100
June 2013-November 2013
150
200
250
300
350
400
November 2013-July 2014
Source: Legal & General Deadline to the Breadline research via TNS Global, Cebr analysis
deadline to the breadline report 2014
The overall Deadline figure of 29 days contrasts
sharply with households’ more optimistic
expectations of how long they would be able to
rely on their savings. On average, UK households
estimate that they could get by on their savings for
77 days – more than double what our estimates
show, reflecting the fact that more people believe
their savings could last for longer than ever before.
Meanwhile, as illustrated in Figure 13, 38% of
households still report having no idea how long
their savings would last.
35%
35%
35%
40%
38%
Figure 13 Household’s estimates of how long they can get by on savings at
current expenditure
30%
19%
21%
20%
25%
4%
5%
4%
1%
2%
1%
3%
2%
2%
5%
2%
2%
2%
4%
3%
4%
7%
7%
7%
10%
3%
4%
3%
15%
5%
4%
5%
16%
16%
14%
20%
0%
6
6
5
m
s
s
s
s
s
ow
s+
th
th
th
th
th
th
th
on
on
on
on
on
on
ks
ks
k
kn
on
m
m
m
m
m
m
ee
w
ee
w
’t
ee
w
on
November 2013
4
3
2
1
3
2
1
D
June 2013
July 2014
Source: Legal & General Deadline to the Breadline research via TNS Global, Cebr analysis
19
20
deadline to the breadline report 2014
4.
Mortgages
and rents –
diverging
circumstances.
With the UK’s economic recovery well under
way and the housing market picking up
strongly, this section of the report examines
how the recovery is affecting different types
of household. To explore this, we consider the
different challenges facing homeowners, with
and without mortgages, compared to people
living in rented accommodation.
deadline to the breadline report 2014
In general, the monthly costs facing households
living in rented accommodation are lower than
those paying off a mortgage debt, as illustrated in
Figure 14. On average, across the UK, households
reported mortgage costs as being 17% higher
than rental costs. Both mortgage and rental
costs are higher in Greater London, with rents in
Greater London reported as being 36% higher and
mortgages 52% higher than the rest of the UK. By
contrast, mortgage and rental costs were lowest in
the North East.
Within the regions and countries of the UK,
mortgage and rental costs generally move
together, meaning that higher mortgage costs
in one region also imply higher rental costs.
There are some exceptions to this pattern,
however. For example, mortgage costs are
higher in Yorkshire than in the East Midlands,
while rental costs are much lower. This can be
explained in part by the differences in the housing
stock being rented. A higher proportion of local
authority or housing association stock (which
are generally associated with lower priced rents)
would bring the average reported rental costs
for the region down.
–
nd
on
So
Lo
er
at
Gr
e
ut
hE
as
t
ut
hW
es
t
to
fE
ng
lan
d
Ea
s
So
No
r th
Ea
st
No
r
W th
Eaalesern
Ir
s
Yo t Mi elan
d
r
d
No ksh land
i
W r th r e a s
e s W nd
Sc t Mi est the
ot dla
Hu
lan n
m
d ds
b
er
Figure 14 MONTHLY RENTAL AND MORTGAGE COSTS PER HOUSEHOLD ACROSS THE UK. REGIONS
ARE POSITIONED ACCORDINGLY AGAINST THE UK AVERAGE.
+
Mortgage
UK Average
UK Average
–
+
on
t
Gr
e
at
er
Lo
nd
ut
hE
as
So
Yo
rk
sh
ire
N
an N or th
d o
W the r th Eas
es H W t
t M um e s
id b t
No
rth S lander
s
er c o
n I tla
r e nd
lan
W d
ale
Ea
s
st
M
S
Ea ou idla
s t th n d
of W s
En est
gl
an
d
Rent
Source: Legal & General Deadline to the Breadline research via TNS Global
21
deadline to the breadline report 2014
The differences in these rental costs are illustrated
in Figure 15 below. On average, households reported
local authority rents as being the lowest, with
monthly costs some 35% lower than the typical
mortgage, while private rents were highest, costing
5% more on average than the typical mortgage.
Therefore, while rents appear less expensive
than mortgages on average, monthly costs for
private renters appear to be higher than mortgage
repayment costs.
Figure 15 Differences in monthly rental and mortgage costs by household type –
average mortgage indexed to 100
120
104.83
100
100
80
68.58
65.40
60
40
20
0
Local Authority rented
Housing Association rented
Mortgage
Private rented
Source: Legal & General Deadline to the Breadline research via TNS Global
There may be some respite on the horizon for
private renters, however, as rental costs appear
to be declining in the UK overall. As shown in
Figure 16, growth in rental costs has slowed sharply
since the end of 2013, and have been falling, on a year
on year basis, since April 2014. Meanwhile, the costs
of mortgage interest payments have been increasing
steadily, rising by 2.5% year on year in July 2014.
Figure 16 Mortgage interest payments and rent costs, annual percentage change
3.0%
Rent
Mortgage Interest Payments
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
July 2014
June 2014
May 2014
Apr 2014
Mar 2014
Feb 2014
Jan 2014
Dec 2013
Nov 2013
Oct 2013
Sep 2013
-1.0%
Aug 2013
-0.5%
July 2013
22
Source: Legal & General Deadline to the Breadline research via TNS Global
deadline to the breadline report 2014
In addition to the cost advantage that homeowners
generally have over households in the private
rental market, homeowners also enjoy higher
income levels. As illustrated in Figure 17, outright
homeowners have the highest incomes, estimated
at £31,700, compared to £25,400 for homeowners
with a mortgage. Both are significantly higher
than the £21,300 incomes of households living in
private rented accommodation, which is in turn
much greater than the incomes of households
living in rented local authority and housing
association properties.
Figure 17 Median annual household pre-tax income by household type, £ thousands
£35,000
£31,700
£30,000
£25,400
£25,000
£21,300
£20,000
£16,000
£15,300
£15,000
£10,000
£5,000
£0
Homeowner
with mortgage
Homeowner
outright
Private rented
Local Authority
rented
Housing Association
rented
Source: Legal & General Deadline to the Breadline research via TNS Global
23
24
deadline to the breadline report 2014
These differences in incomes and housing costs are
evident in the amount of savings that these different
households are able to set aside. Homeowners have
significantly higher levels of savings, compared to
households living in rented accommodation.
As illustrated in Figure 18, outright homeowners
have £23,900 in savings on (mean) average, while
the median homeowner reported savings of £16,700.
This compares to households living in private rented
accommodation, where mean savings were much
lower, at £4,000, while median savings (which are
more reflective of the typical household) were just
£60. Households living in rented housing association
or local authority provided accommodation had
considerably lower levels of savings, highlighting
their far more precarious financial positions. In both
housing types cases (mean) average savings were
£2,500, while the median household had no savings
to draw on.
Figure 18 Average household savings by household type, £ thousands
30
£23,900
25
20
£16,700
15
10
£7,800
5
0
£0
£0
Housing Association
rented
Median
£4,000
£2,500
£2,500
£1,200
£60
Local Authority
rented
Private rented
Homeowner
with mortgage
Homeowner
outright
Mean
Source: Legal & General Deadline to the Breadline research via TNS Global
These hugely divergent savings figures highlight the
precarious financial situation of many households:
particularly given 16.7% of households are living in
private rented accommodation, while 17.6% are
living in local authority or housing association
provided rental property4. For households who are
currently renting privately, lower incomes combined
with higher housing costs make saving a deposit
for a house purchase and moving towards a
financially secure position extremely challenging.
These dynamics are reflected within the Deadline
to the Breadline estimates by household type, as
shown in Figure 19.
4
2011 England and Wales census, accessed via NOMIS.
Outright homeowners have by far the longest
Deadline. Given their current levels of expenditure
and savings, the typical outright homeowner
could sustain their current levels of spending for well
over a year (426 days) following a loss of income.
This falls considerably for homeowners with a
mortgage, for whom the Deadline is somewhat lower,
at 22 days. But for renters, the picture is much less
secure. The typical household living in private rented
accommodation could sustain their typical spending
for just 2 days, based on reported median savings
and expenditures. Meanwhile, households living
in rented housing association and local authority
housing, where over 50% of households reported
zero savings, are constantly on the verge
of the Breadline.
deadline to the breadline report 2014
25
Figure 19 deadline to the breadline by household type
Homeowner
outright
426 days
Homeowner
with mortgage
22 days
Privately
rented
2 days
Housing Association
rented
0 days
Local Authority
rented
0 days
0
50
100
150
200
250
300
350
400
450
Source: Legal & General Deadline to the Breadline research via TNS Global
These financial positions are reflected in the kinds
of people who seek credit from organisations such
as online payday loan companies. As illustrated in
Table 1, 60% of those that seek loans from home
credit groups are social tenants, particularly women.
Social tenants also make up 39% of those who seek
credit from pawnbrokers and 35% of all those that
request loans from a retail payday loan company.5
This large proportion of social tenants and those on
low incomes relying heavily on pay day loans points
to a wider problem in the economy, that many are
still enduring financial hardship and struggling to
meet the rising costs of living.
Table 1 – Differences between credit users, percentage of customers by type of customer
Home credit
Pawnbroker
Retail Payday
LOANS
Online payday
LOANS
Mostly Women
Mostly women
Even mix of men
and women
Mostly men
Social tenant
60%
39%
35%
19%
On a low income6
72%
70%
46%
31%
Aged under 30
13%
28%
32%
37%
Gender
Source: The impact on business and consumers of a cap on the total cost of credit, University of Bristol 2013
5
The impact on business and consumers of a cap on the total cost of credit, Personal finance research centre, University of Bristol, 2013
6
Survey respondents were categorised as being ‘on low income’ if they or their partner had no earned income, or they received working tax credit or pension credit.
26
deadline to the breadline report 2014
For homeowners with mortgages, the financial
security of the household can be much more
dependent upon interest rate fluctuations. This is
particularly true of households with variable rate
mortgages, or those close to the end of their fixed
interest rate period. On the whole, as illustrated
within Figure 20, households expect interest rates
to rise this year or in 2015.
Notably, households with mortgages are less likely
to indicate that they “don’t know” when the Bank
of England is likely to raise interest rates. This
proportion is 21% for households with mortgages,
compared with 29% of households overall. This
would suggest that households with mortgages are
slightly more informed about economic and financial
conditions than the typical household. This makes
sense given the clear incentive for them to keep up
with events that could affect their financial stability.
Figure 20 Household expectations for when the Bank of England will raise interest
rates, percentage of households
50%
45%
37%
40%
29%
30%
21%
20%
20%
16%
9% 8%
10%
0%
2014
Total
2015
2016
5%
2% 2%
1% 1%
0% 0%
1% 1%
2017
2018
2019
2020+
2%
Never
Don’t know
Homeowners with mortgage
Source: Legal & General Deadline to the Breadline research via TNS Global
deadline to the breadline report 2014
Given these expectations for a relatively imminent
rise in interest rates, we investigated the impact that
a rise in interest rates could be expected to have on
the financial security of households with mortgages.
Figure 21 below illustrates the expected impacts upon
households’ Deadlines, as a result of a 1%,
2% and 3% increase in mortgage interest rates.
As interest rates rise, the length of time that
mortgaged households’ savings can sustain their
expenditures falls. For a mortgage interest rate rise
of 3%, the deadline falls from its current level of
22.3 days down to 20.6 days, reflecting the rising
costs of repayments.
In addition, our analysis suggests that a mere 1% rise
in mortgage interest rates could raise repayments
costs sufficiently resulting in households no longer
being able to save each month. This means that,
without changes to their spending habits, as interest
rates rise many households could start to chip away at
their existing savings (the most popular back up plan,
as illustrated later in Figure 23) in order to meet higher
mortgage costs.
Figure 21 Impact of rising mortgage interest rates on households with mortgages
Deadline to the Breadline (Scenarios refer to percentage increases in mortgage interest rates)
22.5
22.3 days
22.0
21.7 days
21.5
21.2 days
21.0
20.6 days
20.5
20.0
19.5
Current
1%
2%
3%
Source: Legal & General Deadline to the Breadline research via TNS Global
A 2% rise in mortgage interest
rates would move the typical
household with a mortgage one day
closer to the breadline, and even a
1% rise would push their monthly
savings into negative territory unless
they change their spending habits.
27
28
deadline to the breadline report 2014
5.
increasing
pressures
facing
households.
The following section looks at the economic
pressures facing households, by examining
households’ concerns and highlighting how
well-prepared they appear to be to deal with
these challenges.
deadline to the breadline report 2014
Figure 22 below provides household’s ranking of
eight different concerns facing them over the next
12 months. Rising living costs over the next year are
by far the most commonly-cited concern. Almost
three quarters of people either agreed or strongly
agreed that living costs represent a key concern
over the coming 12 months. Falling incomes, rising
interest rates and the size of retirement income
were also key considerations for many households.
Households were least worried about loss of
earnings through illness and changes to welfare
payments – with 19.3% strongly disagreeing that
this was of concern to their household.
Figure 22 Households’ rating of selected risks over the next 12 months, percentage
of households
80%
60%
30%
40%
20%
13%
15%
17%
10%
13%
16%
18%
20%
25%
25%
28%
28%
16%
13%
13%
12%
12%
12%
13%
11%
9%
10%
8%
0%
-20%
13%
13%
19%
19%
19%
44%
4%
2%
-40%
in
gi
nc
om
t
os
gc
s in ng
R i livi
of
ll
Fa
e
en
es
m
t
i n ra
se s t
R i tere
in
ire
t
w
lo
ng s
u i te
i n ra
nt s t
Co tere
in
t
re
of
ze e
Si com
in
en
of
ss ym
Lo plo
em
en
o
s t ym
g e pa
an r e
C h e l fa
w
gs
in
rn s s
ea n e
of ill
ss gh
L o rou
th
t
ts
Strongly agree
Agree
Disagree
Strongly disagree
Source: Legal & General Deadline to the Breadline research via TNS Global
Preparing for LOSS OF EARNINGS
THROUGH ILLNESS does not yet
appear to have moved up household’s
agendas, even though many have
concerns over the rising costs of
living, and the potential for falling
incomes in the 12 months ahead.
29
30
deadline to the breadline report 2014
Savings remain by far the most popular method for
dealing with sudden changes in circumstances, with
41% of households using this as protection, as shown
in Figure 23. Surprisingly, there has been a slight
decline in the number of households taking action to
help protect their finances, represented by a 2% fall
in the number of households having critical illness
and life insurance cover. However there has been
a 1% increase in the number of households having
income protection cover. Meanwhile, the number
of households taking out mortgage protection
insurance has remained the same at just 8% – this
despite the majority of households expecting interest
rates to rise before the end of 2015.
Preparing for unforeseen events does not appear to
have moved up households’ agendas, even in light
of the concerns highlighted above. The proportion
of households with no strategy in place to cope
with financial hardship increased to 36% in July,
compared to 35% in November 2013.
Figure 23 Financial hardship strategies used by households, percentage
of households
July 2014
November 2013
50%
42%
40%
35%
38%
36%
41%
36%
30%
20%
10%
0%
8%
8%
8%
Mortgage
Protection
7%
7%
Family
8%
Income/unemployment
protection insurance
Nothing
Critical illness/
life insurance cover
My savings
Source: Legal & General Deadline to the Breadline research via TNS Global
As shown in Figure 24, the amount that households
spend on helping to protect their current way of life
and helping to protect their futures has fallen slightly
across all demographics, apart from the 18-24 age
group. This youngest demographic group, which has
also shifted its preferences to accumulate greater
savings, is the only to group to have increased
spending on insurance, from £10.42 to £12.94. The
average UK household has marginally reduced the
amount it spends on insurance, from £13.94 to £13.14.
Figure 24 Household monthly expenditure on insurance, £ by age of primary
income earner
£18.40 £17.64
20
15
£12.94
£14.73 £14.52
£16.76
£15.15
£12.12
£10.42
£13.94 £13.14
£10.55
10
£11.18
£8.82
5
0
Age 18-24
November 2013
Age 25-34
Age 35-44
Age 45-54
Age 55-64
Age 65+
UK
July 2014
Source: Legal & General Deadline to the Breadline research via TNS Global
deadline to the breadline report 2014
Figure 25 illustrates the sacrifices that households
are prepared to make to cope with a shock to their
finances, which have remained broadly the same
since the last report in November 2013. Holidays
are still the first things to be cut during times of
hardship, as indicated by 44% of households. 42% of
households suggest they would cut back on social
activities when times get difficult, followed by 40%
who would cut back on buying clothes. However,
uncertainty appears to be on the increase also – the
proportion of people who don’t know what they
would likely cut back on rose by 5% in July, reaching
26% compared to 21% in November 2013.
Figure 25 Sacrifices households are willing to make, percentage of households
60%
50%
40%
49%
44% 44%
42%
40%
36% 35%
34%
32% 32%
31%
30%
26%
25%
20% 19% 19%
18%
20%
21%
16% 17% 16%
14%
8%
10%
11% 10%
6%
0%
ow
ea
ve
bo
g
yf
in
g
er
ht
rs
ig
in
ee
s
om
s
su
te
es
et
g
in
eh
ov
m
bl
nu
rl
r
or
th
kn
of
or
go
ol
ne
ho
t
n’
Do
No
Sc
in
ca
ize
he
ns
at
od
w
ll t
He
Fo
Se
Do
m
ar
lis
ag
ck
es
cia
c ig
pa
nd
V
la
lT
a
/g
ry
ta
t te
gi
ho
th
o
/s
lo
ut
gc
go
s
ay
yin
co
Lo
Di
Al
Bu
in
lid
Go
Ho
e
ch
as
Sk
y
November 2013
July 2014
Source: Legal & General Deadline to the Breadline research via TNS Global
Many households (50%) said they knew someone
who had suffered from serious injury or illness,
highlighting the large number of people who has
seen first hand the impact an unforeseen event can
have upon someone else’s life. As shown in Figure
26, these people were supported financially in a
variety of different ways. The most common source
of financial support is family and friends and state
benefits, which 21% of people indicated was their
main source of help, a fall of 2% since November
last year. This reliance on family and friends sits in
stark contrast to people’s perceptions of their own
backup plans, in which just 7% of people would
expect to lean on them for financial support.
In many cases people have sacrificed some of their
usual spending; cutting back on heating and lighting
and food. Almost half of households (47%) didn’t
know how others had coped financially.
50% of people said they knew someone
who had suffered from serious illness
or injury.
31
32
deadline to the breadline report 2014
Recent research by Macmillan Cancer Research
found that one in three people living with cancer
experienced a loss of income, on average £8607 a
month, as a result of their diagnosis. Costs associated
with living with cancer include travel costs to and
from hospital appointments, increased household
energy bills and additional clothing costs. Many
people find they have to stop working or reduce
their hours. With more than one in three people in
the UK developing some form of cancer in their
lifetime, it highlights the importance of financial
planning and putting plans in place to help protect
their income against the financial hardship of a
serious or life threatening illness.
Figure 26 Financial coping mechanisms used by someone suffering from serious
injury or illness, percentage of households
47%
50%
40%
30%
21%
21%
20%
16%
9%
8%
10%
7%
6%
6%
4%
2%
2%
2%
0%
kn
ro
r
ke
s
rS
rt
e
m
ht
g
es
in
s
ag
ck
ig
nd
po
ho
pa
up
V
rl
ay
its
rie
go
ns
ks
oa
an
nb
db
ow
oo
ar
aw
dP
dF
ec
lT
ce
ta
d
tin
e
ov
rm
an
do
yl
da
ay
dP
t
n’
Do
e
Us
e
Us
e
Us
th
ize
nC
illa
ns
m
ld
ac
So
M
w
oo
gi
nf
ea
kp
ef
df
en
an
sic
ily
b
te
nh
di
ko
ko
k
or
dw
ta
am
ns
nf
ed
ac
ell
tb
nc
Do
Ca
Cu
ac
ive
do
do
tb
ce
lie
lie
Cu
Re
Re
Re
Source: Legal & General Deadline to the Breadline research via TNS Global
A number of households appear to have limited
knowledge of the government support they may
be entitled to if they were to fall into financial
hardship. As highlighted in Figure 27, 35% of
households don’t know what state benefits would
be available to them if they were unable to work
through illness, and 42% don’t know what support
could be available to their family in the event of their
death. On average, people expect to receive £58.88
each week in the event of illness and £47.71 each
week in financial support for their family in the event
of their death.
More than one in
three people in the
UK develop some
form of cancer in
their lifetime.
Macmillan Cancer Support – Cancer’s hidden price tag – Revealing the costs behind the illness.
7
deadline to the breadline report 2014
The actual support that households could expect to
receive is quite different from these estimates. If an
individual should fall ill, they would be expected to
receive a statutory sick pay8 of £87.55 per week, for
up to 28 weeks. In the event of death in the family, the
household may be entitled to a one off bereavement
payment of £2,000, in addition to widowed parent’s
allowance of £111.20 a week, providing the claimant is
under the state pension age. These allowances would
greatly exceed the weekly estimates that households
indicated they would be entitled to; however, these
sums would fall well short of the £381 that the typical
(median) household spends each week9. Plus with
future increases in most state benefits capped to
1% a year by the government until 2016, people in
such distress may find it more difficult to stretch
their benefits to cover the rising cost of living.
Figure 27 Household expectations of government support per week following
illness or death, percentage of households
50%
42%
40%
37%
35%
30%
25%
18%
20%
10%
8%
10%
3%
1%
4%
10%
6%
0%
Don’t know
Support following illness
Nothing
£0-20
£20-50
£50-100
£100+
Support following death
Source: Legal & General Deadline to the Breadline research via TNS Global
8
Correct as at 23/01/2014
9
This expenditure figure is based on median household responses to the July 2013 TNS survey
33
34
deadline to the breadline report 2014
6.
Methodology.
deadline to the breadline report 2014
Survey
The data on which this research is based were collected by specialist market research company
TNS Global. The latest survey was conducted between the 10th and 24th of July 2014 in which 4,886
respondents answered 19 questions and sub-questions. The previous surveys were carried out
between the 7th and the 14th of March 2013 in which 2,478 respondents answered 18 questions and
sub-questions. A further survey was carried out between the 3rd and 14th of October 2013 in which
5,068 respondents answered 19 questions and sub-questions.
In order to ensure that the sample allows inferences to the general UK population, the answers for
some respondents were given a higher or lower weight, reflecting their over- or under-representation
compared to the general population according to several characteristics. The characteristics according
to which responses were re-weighted are:
•Age
•Gender
• UK region
• Household size
• Age at which education ended
• Social grade
Analysis
Our economic forecasts and detailed analysis were undertaken with the help of the Centre for
Economics and Business Research Ltd (Cebr), who for 20 years has supplied independent
economic forecasting and analysis to hundreds of private firms and public organisations.
www.cebr.com
Indicator
The measures for incomes, savings and expenditures are drawn directly from the survey, with
the weighted averages based on mid-points for the answer ranges and the end-points at the same
distance as that between the previous two points.
The Deadline to the Breadline headline indicator is computed as:
‘Savings’ / (‘Typical expenditure’ – ‘Emergency income’)
‘Savings’ is the median weighted answer to the question: “How much do you and your household
currently have in total in savings and investments?”
‘Typical Expenditure’ is defined as ‘After-tax income’ less ‘saving’, where;
A) ‘After-tax income’ is the median weighted answer to the question: “How much is your annual
household income before tax?” less tax. It is assumed that the pre-tax income is taxable at
standard rates of income tax of early 2013; and
B) ‘Saving’ is the median weighted answer to the question: “How much of your personal and
household’s income would you say is saved each month?”
C) ‘Emergency income’ is given by the sum of statutory sick pay (equal to £87.55* per week),
or state pension (£113.10 per week).
Throughout the analysis discretionary income refers to the household income left after paying tax,
national insurance, housing costs, loan repayments and bills.
Further details on survey design and computation methods as well as summary statistics are
available on request.
Any of the findings in this report, may be used if sourced as Legal & General’s Deadline to the
Breadline Report November 2014.
*Rates correct as at January 2014.
35
www.legalandgeneral.com
Legal & General Partnership Services Limited
Registered in England No. 5045000
Authorised and regulated by the Financial Conduct Authority.
Legal & General Assurance Society Limited
Registered in England No. 166055
Authorised by the Prudential Regulation Authority and regulated
by the Financial Conduct Authority and the Prudential Regulation Authority.
Registered office for both firms: One Coleman Street, London EC2R 5AA
W13612 11/14