UK consumers borrow and save less

by Gill Montia

Story link: UK consumers borrow and save less

The latest Borrowing Monitor from Alliance & Leicester (A&L) shows a marked change in the habits of UK consumers as they adapt to the five base-rate increases since August 2006.

In July 2006, the month before the first base-rate rise, the monitor registered the mood as ‘fighting fit’ but the signs are that people are less comfortable now that interest payments are putting pressure on household budgets.

There is evidence that homeowners are reducing their borrowing and saving less, whilst those living in rented accommodation are more concerned about their debt than those with mortgages.

In the first-quarter of 2007, UK savings trends reached an all time low, with people saving an average 2.1% of their incomes.

The figures increased slighting in the second-quarter, to 3.1%, but remained well below the ten year average of 6%.

Homeowners with mortgages have been saving less than the national average and the monitor shows that in the second-quarter of 2007, mortgage borrowers reduced their credit card balances at twice the pace of the overall credit card market.

In the first-half of the year, households with mortgages paid back an average of £351 on their credit cards, taking an average balance to £2,410. Those without mortgages increased their borrowing by £52.

The A&L thermometer also shows the total burden of consumer debt against the level of base rates for households with a mortgage.

That base rate would need to increase to 8.25% for the cost of debt servicing as a proportion of household income to attain the levels seen in the 1990s.

Economists are not now expecting the Bank of England base rate to reach 6% this year, as had been widely predicted in the summer.

This and the prospect of an base rate cut in November has led A&L to predict that household budgets will be less stretched in the coming months.