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Low mortgages boost homeowners’ spending power

Drop in mortgage payments releases surplus cash

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UK homeowners with a mortgage have seen their spending power rise by a tenth over the past year, according to research by Halifax. 

Halifax estimates that between March 2008 and March 2009, the average monthly discretionary income, (the amount available to spend on ‘non-essential’ items,) of households with a mortgage, rose from £892 to £989, an increase of around a tenth (£97).

After accounting for taxes and essential household bills, mortgage holders now have 48% of their net monthly income available to spend on non-essentials, which is the highest for three years and compares with 45% in March 2008.

Mortgage repayments

The sizeable rise in the average mortgage holder’s discretionary income has been driven by a significant fall in mortgage repayments, which have dropped by 11% (£72) from a monthly average of £664 in March 2008 to £572 in March 2009. 

This decline reflects the significant falls in interest rates over the period with the average mortgage rate falling to 3.83% in March 2009 from 5.80% a year earlier. Clothing was the only other essential item to record a price decrease (-6%).

The reduction in mortgage repayments outweighed the rises in the cost of other essential items. Over the past year, utility bills have risen from £91 to £105 a month, an increase of 15.5%; more than any other essential spending category. Food prices saw the next largest increase (10.3%), adding an average of £19 to a household’s monthly expenditure.  

Halifax: homeowners should use extra income wisely

Lower interest rates have benefited some homeowners more than others. Those on a variable rate deal have seen a large fall in their monthly mortgage payments. In contrast, many of those on a fixed rate mortgage have received no such reduction.

Homeowners with a mortgage have fared significantly better than other households with an increase in their discretionary income of more than double the rise for all households. 

Suren Thiru, economist at Halifax, said: ‘The considerable fall in mortgage repayments over the period has been a key factor behind the increase, providing a timely boost to mortgage holders’ spending power.  Other households have not fared as well with many suffering as a result of the significant increase in fuel bills.

‘Clearly, many mortgage holders are benefiting from record low interest rates and the situation will be less favourable when rates eventually begin to rise.  

‘Also, with the outlook for the UK economy remaining highly uncertain, many homeowners may choose to utilise the extra available income to build up their own savings balances or increase debt repayments rather than to boost their spending on the high street.’ 

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