Tuesday, Oct 23, 2007
That 2% fall in disposable over the past decade income is starting to hurt
Firstrung: Families with mortgages cut back on spending and see savings fall
British families are feeling the effect of the five base rate rises since last summer, and are pulling in their horns, according to the latest Borrowing Monitor from Alliance & Leicester. Now that interest payments are consuming more household income, the Thermometer shows people are feeling less comfortable. However, with interest rates now unlikely to hit the 6% level widely predicted in the summer, and with borrowing slowing, we may see household budgets looking less stretched, especially if rates start to drop again.
Posted by converted lurker @ 10:39 AM (320 views) Add Comment
3 Comments
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1. Ian said...
Even if the Bank of England reduces rates, lendors are re-pricing risk so the spread between base rate and mortgage rate will increase. In addition, with inflation (CPI) rising the Bank may have to increase interest rates. Finally, real inflation is inceasing masively; food prices, oil prices, council tax and National Insurance are all going up so even more people will not be able to meet their repayments.
2. shipbuilder said...
Dream on - people are paying their mortgage with their credit cards, the fixed rate adjustment is coming up, no freeing from the credit crunch in sight - there is also a question as to whether lenders would actually drop their rates in line with the BofE (even if that did happen with the amount of inflation looming). Where do these idiots get the idea that if rates dropped, people would suddenly start spending the extra money rather than pay extra off their substabntial debts? It took me a year or so to pay off a poxy couple of grand car loan on an above average wage - only then did my spending habits change in any great way. Bulls really are the kings of wishful thinking.
3. Jonb said...
Libor is currently 6.23%, and that's the rate that matters, so the widely expected interest rate increase has already happened. If the Bank of England does reduce rates by 0.5%, that might (and only might) put the rates back to where they were before the Northern Rock crisis.
Also, as Ian has correctly pointed out, the risk spread is increasing, so that's putting up mortgage rates even more than the effect just from the Libor increases.
And, as Shipbuilder has correctly pointed out, when people are paying 29.9% on a credit card to borrow the money to pay the mortgage, plus the 3% cash advance fee, and interest on the cash advance fee; then problems are not far away.