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Mortgage advice is becoming part of a wider holistic financial view – Harle

by: Gemma Harle, managing director of Quilter Financial Planning
  • 14/12/2020
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Mortgage advice is becoming part of a wider holistic financial view – Harle
For lots of people, particularly early on in life, a pension is a fairly intangible proposition which relies heavily on a saver appreciating the concept of delayed gratification.


In contrast, the idea of saving to get a foot on the property ladder is easy to understand and has a clear perceptible outcome.

In reality, both pensions and house ownership should feed into someone’s overall financial plan and should not be thought of in isolation of one another.

Unfortunately, research recently released from the Institute for Fiscal Studies (IFS) shows that at present many people don’t see their finances in this way.

One of the most significant findings from the report is that very few individuals increase their pension saving when they pay off their mortgage. The IFS estimate that only five out of every 100 individuals choose to increase their pension saving by £150 per month or more after paying off their mortgage.

This is despite the fact that average mortgage payments among this group have been over £200 per person per month.

Similarly worrying findings from the report show that those who are employed and live in rented accommodation in all age groups were less likely to save in a private pension than those with a mortgage regardless of salary band. The Office for National Statistics estimates there to be around 4.5m households renting at the moment, showing that this is not an insignificant proportion of the population.


Policies to target end of mortgage

The IFS suggests that if we are going to try and increase the amount that people save into a pension then the industry and policymakers should consider policies that target individuals at the point when they finish repaying their mortgages.

These individuals could increase pension savings without having to see spending on other goods or services fall at that point in time as they simply siphon the money that was previously spent on a mortgage into their pension.

Financial advisers are already ideally placed to help with this. Often someone’s first interaction with financial advice is when they get a mortgage. At the moment a substantial part of that advice is transactional.

However, there could be scope to mandate an end of mortgage meeting with the financial adviser who can then look at someone’s financial life in the round.

Indeed, mortgage advice is increasingly becoming part of wider holistic advice.

This is ideal as advisers who see their clients earlier on in life can play a significant role in helping them decide how much they save into a pension, how much they spend on their home and how the timing of saving into a pension interacts with the timing of a property purchase or mortgage.

The key point that this report illustrates is that the majority of people clearly require help to understand how all the various facets of their financial life fit together and interplay.

So any solution needs to reveal the importance of later life saving from an early age.

This is best achieved by improving the UK’s approach to financial education. The Money and Advice Service found that 55 per cent of working age adults do not feel that they understand enough about pensions to make decisions about saving for retirement. This lack of understanding ultimately leads to inertia.

Overhauling the UK’s approach to financial education will be the best way to help the next generation seize the opportunity to save for retirement from a young age but for those who have finished their education the IFS’ findings show how useful financial advice can be in shaping the right money habits.

This two-pronged approach of education and financial advice will give the UK population the best chance at financial success.

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