UK PROPERTY NEWS & ADVICE

Mortgage Holders Feel The Strain of Base Rate Hikes

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.”

Visit the Alliance and Leicester website for more information on A&L Mortgages, Loans and Savings.

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