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Mortgage holders cut back on other debts

22/10/2007

Alliance and Leicester have found from a new study that people with mortgages have been cutting back on debts including credit cards and putting less money aside for savings.

The new report shows that the last five increases in the interest rate has meant borrowers are using more of the household income to pay for their mortgage hence other areas suffering.

Savings in Britain has reached an all time low with people just saving 2.1 percent of their incomes in the first quarter.  This number has increased in the second quarter to 3.1 percent but this is still half of the 10 year average of 6 percent.

The savings wealth is increasing for those without any borrowings and for those with a mortgage; they are just getting further and further behind the national average.

Figures from January 2006 show that the average savings of a household with a mortgage stood at two-thirds of a household with no mortgage to pay, but this figure is now down to less than a half.
This report also shows that less people now plan to buy a first time home, increase their mortgage or move into a larger property.

Director of strategic planning at A&L, Sean Murphy, says: “Families are cutting back on their borrowing and their saving to help ensure they can afford higher mortgage and other household bills. 

The continued growth in mortgage borrowing masked a big change in the behavior of mortgage borrowers in other areas of their personal finances as they felt the pressure of higher rates.  With the next move in base rates now seen as more likely to be downwards, this could bring them some welcome comfort.”


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