Interest rates trigger boost to homeowner spending

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

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.

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. Across all UK households, the average monthly discretionary income rose by 4.8% between March 2008 and March 2009 from £875 to £917.

However, the marked increase in energy costs has resulted in a rise in the number of households in "fuel poverty".

Suren Thiru, economist at Halifax, said: "Over the past year, homeowners with a mortgage have seen their discretionary income rise by more than a tenth on average.

"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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