Fall in mortgage costs 'boosts spending power'

03/08/2009

Some good news has been given to UK homeowners - with Halifax saying that their spending power has risen by around ten per cent in the last year.

A report from the lender calculated the typical monthly "discretionary" income of a household - which is worked out when essential costs such as mortgage payments, utilities bills and food are deducted from peoples' earnings.

According to Halifax, in March 2009 this extra money came to £989 per home, up from £892 in March 2008.

Interest rate cuts from the Bank of England leading to a fall in mortgage costs was seen by the firm as a primary reason for this trend.

Indeed, those households which do not have a mortgage found that their discretionary income rose by 4.8 per cent over the 12-month period - less than half the rise experienced by homeowners.

Suren Thiru, economist at Halifax, said: "Clearly, many mortgage holders are benefitting from record low interest rates and the situation will be less favourable when rates eventually begin to rise.

Kevin Still, EuroDebt director, added: "I am slightly surprised by the Halifax report, as the evidence that EuroDebt has seen is that disposable income has been squeezed because of a number of factors like rising energy costs, cost of living increases, insurance premiums and salary freezes. Interest rate reductions have not benefited all homeowners and the expectation is that interest rates will rise on variable rate mortgages. Credit Action's August report quotes £21,480 of unsecured debt per household [using some form of credit] would suggest that credit repayment costs would be in excess of £600 per month.

"EuroDebt's average unsecured debt per homeowner client is over £35,000, which would have contractual monthly costs in excess of £1,000. If these costs are subtracted from the disposable incomes quoted then many have negligible or no disposable income. One of the reasons Debt Management Plans and IVAs have become significantly more popular is because they do not involve further borrowing and monthly payments are reduced to a level that people can afford and have sufficient disposable income to meet essential housekeeping and other living expenses, especially where children, disabled people or the elderly are involved."

Tags; Budgeting Advice, Young Family Finances, Retirement Money Problems, Recent Graduate Debt,

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