Falling interest rates and lower mortgage payments mean a quarter of UK homeowners are at least £200 a month better off than this time last year, according to the Bank of England.
Data based on a survey of 2,000 households shows almost half of all mortgage payers have seen a fall in monthly payments of more than £100 over the last year, with almost a quarter benefiting by more than £200. The average works out at £130, the Bank says in today’s Quarterly Bulletin, its examination of financial markets.
The Bank feels the cushion provided for homeowners against the effects of recession, rising unemployment and the fall in house prices have made it easier for some householders to cope with debt problems.
Meanwhile, a slow-down in wage settlements and extensive pay freezes coupled with a lower inflation rate have protected jobs and meant unemployment is below forecast levels, the Bank adds.
However, the Bank points to growing concern among investors about inflation risks and the security of Government borrowing.
The Bank says that investors are seeking refuge in a host of inflation-proof investments as they fret about the long-term effects of the £200bn quantitative easing programme. Although the bulletin was largely finalised before last week’s pre-Budget statement, it will fuel concern that Britain remains exposed either to a fiscal crisis or an inflationary spike as the Government seeks to reduce its huge debt.
The policy of pushing cash directly into the economy – quantitative easing – has helped bank lending as well as producing record profits for the Bank, but the uncertainty about the timing and pace of the rundown has added to tension in the market place.
Ending quantitative easing will involve the Bank either suspending gilt purchases or selling them back into the market at a time when the Government is faced with raising near record amounts of gilts.
Investors, the Bank warns, might also become more concerned about Britain’s credit standing and demand “additional compensation to hold gilts”.
The Bulletin also points out that improvements in various measures of the London Interbank Offered Rate, the benchmark for wholesale lending costs, may have disguised the reality that many companies still find the cost of borrowing extremely expensive.
In its household analysis the Bank does not minimise the damage caused by recession and the credit crisis. More than one-in-four households with a non-manual worker have seen their income after paying tax, national insurance, housing costs, council tax, loan payments and debt drop by more than £100 to an average of £3,981 over the past year.
Almost a third of “manual households” have suffered a similar drop to £2,291 while nearly half those unemployed over the past year are said to be £100 worse off.
http://www.telegraph.co.uk/finance/newsbysector/constructionandproperty/
