‘borrowing Up, Savings Down’ Spells Trouble for UK Economy
Tagged: Personal FinanceLatest financial industry figures show that UK savings balances are reducing at the same time that borrowing levels are on the increase, as millions of Britons struggle to pay their increased mortgage payments and increased utility bills.
The credit crunch is being blamed for people using their savings to pay for luxuries such as summer holidays, and that draw on cash reduced the UK’s savings balances by £11billion in the third quarter of 2007. However, at the same time according to Unbiased, a website promoting independent financial advice, UK consumers also increased their borrowings by £11.7billion as people took out more loans and increased credit cards usage.
Unbiased’s research examines the relationship between savings and borrowings, excluding mortgages and highlights that over the third quarter of 2007 UK consumers borrowed 35p for every pound saved. That represents a significant increase on the figure of 13p borrowed against every pound saved in the previous quarter.
Chief executive of Unbiased, David Elms said: “We’ve seen a lot of financial markets activity in the third quarter of 2007, which marked the beginning of the Northern Rock crisis. Summer interest rates were still at a relatively high 5.75% and many people will have seen their disposable income reduced as the credit crunch kicked in. Although the drop in savings and the high level of borrowing come as no surprise, it is worrying.”
The situation is unlikely to improve in the short term, especially during the run up to Christmas when spending is predicted to increase significantly. That Christmas spending has to be funded somehow, and many financial experts are expecting it to be by credit card. Indeed, experts expect the amount spent on UK credit cards over the past three months to rise sharply - not only fuelled by Christmas spending, but also by worrying evidence that, in the light of the credit crunch, many are using their cards to fund day-to-day expenditure.
Many Britons have got used to the financial landscape of the last 10 years in which consumer credit has been easily accessible, but many expecting to take advantage of new interest-free credit card deals are likely to be disappointed. The credit crunch has bitten and many lenders have drastically tightened their lending criteria, leading to record numbers of applicants being turned down for new credit cards.
Unfortunately, as many are now finding to their cost, it is no longer a case of being able to compare credit cards, and transfer your balance interest-free to the one you want. Indeed, it is now the credit card companies that are doing the comparisons and cherry-picking their card-holders.
The credit crunch is being blamed for people using their savings to pay for luxuries such as summer holidays, and that draw on cash reduced the UK’s savings balances by £11billion in the third quarter of 2007. However, at the same time according to Unbiased, a website promoting independent financial advice, UK consumers also increased their borrowings by £11.7billion as people took out more loans and increased credit cards usage.
Unbiased’s research examines the relationship between savings and borrowings, excluding mortgages and highlights that over the third quarter of 2007 UK consumers borrowed 35p for every pound saved. That represents a significant increase on the figure of 13p borrowed against every pound saved in the previous quarter.
Chief executive of Unbiased, David Elms said: “We’ve seen a lot of financial markets activity in the third quarter of 2007, which marked the beginning of the Northern Rock crisis. Summer interest rates were still at a relatively high 5.75% and many people will have seen their disposable income reduced as the credit crunch kicked in. Although the drop in savings and the high level of borrowing come as no surprise, it is worrying.”
The situation is unlikely to improve in the short term, especially during the run up to Christmas when spending is predicted to increase significantly. That Christmas spending has to be funded somehow, and many financial experts are expecting it to be by credit card. Indeed, experts expect the amount spent on UK credit cards over the past three months to rise sharply - not only fuelled by Christmas spending, but also by worrying evidence that, in the light of the credit crunch, many are using their cards to fund day-to-day expenditure.
Many Britons have got used to the financial landscape of the last 10 years in which consumer credit has been easily accessible, but many expecting to take advantage of new interest-free credit card deals are likely to be disappointed. The credit crunch has bitten and many lenders have drastically tightened their lending criteria, leading to record numbers of applicants being turned down for new credit cards.
Unfortunately, as many are now finding to their cost, it is no longer a case of being able to compare credit cards, and transfer your balance interest-free to the one you want. Indeed, it is now the credit card companies that are doing the comparisons and cherry-picking their card-holders.
What Next for the UK Economy
Tagged: Personal FinanceIndustry experts had predicted the interest rate hold but it surely is becomming harder for the Bank of England to make these rate setting decisions.
Rising inflation means that food prices and fuel prices are rising and the Governmnets target for inflation, which is set at 2 per cent, is not being hit by the Bank of England. The pound is not performing well against the Euro and that means goods and services we import from Europe cost us more. Just these reasons would normally be enough for the Bank of England to increase interest rates.
The problem is the slump in the UK housing market and mortgage mayhem following the credit crunch; this means that the Bank of England is also under pressure to consider the economics here as well as rising inflation.
In the US interest rates have been cut to an all time low of 2 per cent to try and recharge the slowing economy and housing market.
Obviously for everyone with a fixed rate mortgage it really makes no difference what the Bank of England do with interest rates until your out of the fixed rate period.
I’m one of the ‘lucky’ people who can choose to ignore interest rates at the moment and as long as I can afford to continue paying my mortgage there should, fingers crossed, be nothing to worry about. I’m also lucky enough to have almost 40 per cent equity in the property I’ve mortgaged. In theory I should be able to let the ecomony do what it’s going to do over the next 2 or 3 years.
The people with tracker or base rate mortgages will continue with the same monthly payments, the issue for these people may come if and when interest rates begin to rise.
No-one really knows how far house prices will fall either. There are statements like ‘house prices are at there lowest since 1992? and so on, however all this really means is that house prices have not continued to increase at the dramatic levels we’ve been used to for the last 5 years or so. Over the last year house prices have slowed or even fallen but over the last 10 years house prices continue to rise.
If you have savings then you should make the most of these times, interest rates on savings accounts are available up to 7 per cent. Get saving and clear your debts should be the message for everyone!
Rising inflation means that food prices and fuel prices are rising and the Governmnets target for inflation, which is set at 2 per cent, is not being hit by the Bank of England. The pound is not performing well against the Euro and that means goods and services we import from Europe cost us more. Just these reasons would normally be enough for the Bank of England to increase interest rates.
The problem is the slump in the UK housing market and mortgage mayhem following the credit crunch; this means that the Bank of England is also under pressure to consider the economics here as well as rising inflation.
In the US interest rates have been cut to an all time low of 2 per cent to try and recharge the slowing economy and housing market.
Obviously for everyone with a fixed rate mortgage it really makes no difference what the Bank of England do with interest rates until your out of the fixed rate period.
I’m one of the ‘lucky’ people who can choose to ignore interest rates at the moment and as long as I can afford to continue paying my mortgage there should, fingers crossed, be nothing to worry about. I’m also lucky enough to have almost 40 per cent equity in the property I’ve mortgaged. In theory I should be able to let the ecomony do what it’s going to do over the next 2 or 3 years.
The people with tracker or base rate mortgages will continue with the same monthly payments, the issue for these people may come if and when interest rates begin to rise.
No-one really knows how far house prices will fall either. There are statements like ‘house prices are at there lowest since 1992? and so on, however all this really means is that house prices have not continued to increase at the dramatic levels we’ve been used to for the last 5 years or so. Over the last year house prices have slowed or even fallen but over the last 10 years house prices continue to rise.
If you have savings then you should make the most of these times, interest rates on savings accounts are available up to 7 per cent. Get saving and clear your debts should be the message for everyone!