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PROPERTY NEWS & ADVICE
Mortgage Holders Feel The Strain of Base Rate Hikes
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The latest Alliance and Leicester borrowing monitor reports
that the five base rate hikes appear to be having a marked
effect on spending by families with mortgages. With the base
rate now standing at 5.75%, an increase of 1.25% on July 2006,
mortgage holders are increasingly reluctant to take on more
unsecured debt.
It is a trend that is also made evident by the widening spending
gap between those with secured debt and those without. Indeed,
ever since the fist base rate hike in the third quarter of
2006 this gap has been growing perceptibly suggesting that
mortgage holder’s budgets are becoming increasingly
stretched to the point where we could potentially be on the
cusp of a significant slowdown in consumer spending.
Whilst the past year has seen a general downturn in unsecured
borrowing, mortgage holders have been cutting back to a far
greater extent than the general market. In fact, even though
the market maintained a modest overall growth, the second
quarter of this year saw unsecured borrowing amongst mortgage
holders actually fall.
This downturn shows little sign of being a temporary blip;
according to the A&L report mortgage borrowers are 50%
more likely than the general population to reduce their credit
card and other unsecured borrowing. The report also shows
that this more thrifty approach isn’t just limited to
unsecured loans: the average mortgaged household paid back
£351 on their credit cards compared to an average increase
in credit card borrowing of £52 amongst non mortgage
holders.
The base rate rises have seemingly also impacted on savings
which hit an all time low in the first quarter of the year
when Brits were saving just 2.1% of their incomes. This may
have since picked up to 3.1% but is nonetheless considerably
down on the ten year average of 6%. Once again, this decline
is most starkly evident amongst mortgage holders, who are
falling further and further below the overall national average.
Sean Murphy, Director of Strategic Planning at 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.”
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