Households ‘Cutting Back On Saving To Meet Mortgage Costs’
Britons are putting less money into savings accounts to cope with the rising pressure mortgage costs are putting on their finances, new figures reveal.
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October 22, 2007 (FPRC) -- In Alliance & Leicester’s Borrowing Monitor, households are also cutting back on the amount of money they take out on various forms of unsecured borrowing, for instance personal loans and credit cards, as the impact of the five base rate rises since August 2006 lead to an increase in mortgage costs. The news comes as the financial services firm’s latest Thermometer shows that in July 2006, before the series of increases began, households’ finances were “fighting fit”. However, with the base rate at 5.75 per cent homeowners are feeling “less comfortable” as surging mortgage costs impact upon their ability to service credit cards, utility bills, secured loans and other demands on their spending.
Meanwhile, with the amount of money being saved continually below average proportions over the past ten years, consumers could be set to struggle even more to meet loans costs in the future. During the first quarter of this year, Britons were saving 2.1 per cent of their salary - a record low.
Despite this figure rising to 3.1 per cent between April and June, Alliance & Leicester pointed out that is still below the typical six per cent which has been put away over the last ten years. In addition, money management problems may be even more produced for people living in rented accommodation as it was suggested they are not reducing the amount they borrow through loans and other types of credit despite “worrying far more about their borrowing than those with mortgages”.
Commenting on the figures, Sean Murphy, director of strategic planning for Alliance & Leicester, said: “Families are cutting back on their borrowing and their saving to help ensure they can afford higher mortgage and other household bills. Even though average interest rates on unsecured borrowings have actually fallen over the last 12 months, that has not been enough to tempt mortgage borrowers to take on more unsecured debt. Their family budgets have been under pressure and they have cut their cloth accordingly.”
The study also showed that total unsecured borrowing has been rising at the slowest pace ever noted over the course of 2007, while lending via credit cards has fallen. Following the first interest rate rise in August last year, those with mortgages are now less likely to take out unsecured loans than any other sort of consumers. Meanwhile, such Britons are 50 per cent more likely to cut back on expenditure via credit cards, personal loans and other types of unsecured borrowing than those who do not have a mortgage.
Additionally, Mr Murphy reported that the recent growth in mortgage borrowing has put more pressure on homeowners’ ability to handle other lending and demands on their spending. However, he added that as the next base rate movement is likely to be downwards, consumers may be able to manage their money with more ease in coming months.
Despite predictions of a fall in interest rates, those consumers who are concerned about how they will manage their finances in the future may wish to consider applying for debt consolidation loans. Upon receiving such a loan, borrowers may be left with more disposable income and make mortgage payments with greater ease after merging multiple demands on their spending into one low-rate repayment.
Earlier this month, Daryl Warwick, insolvency partner at Armstrong Watson, told the News & Star that creating a budget can give people an idea of where their money goes and identify where any savings can be made. He added that more people will struggle with their finances as a result of the impact of base rate rises, with a debt consolidation loan one possible way of helping to cut back on expenditure.
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