Disposable income falls by £46 a month

Graham_Devon

Disposable incomes have fallen for the fifth year in a row, according to the Bank of England's quarterly bulletin.
The Bank's survey found the amount the average household had to spend each month, after tax, bills and housing costs, fell by £46 over the year.

The Bank blamed rising VAT and energy prices, as well as government cuts for the fall.

It comes as another survey by Deloitte found one in five UK households saw their income drop in the last quarter.

It's often asked why, if people could pay their mortgages in 2007, rising interest rates will have any effect now unless they went over what they were in 07.

Well heres one of the reasons.

Lots more on this article here: http://www.bbc.co.uk/news/business-16223864

Owain_Moneysaver

<giggle> Oh, to have 46 a month disposable income to start with!

StevieJ

That is an improvement it was something like £140+ a monthe last week

IveSeenTheLight

Graham_Devon wrote: »

It's often asked why, if people could pay their mortgages in 2007, rising interest rates will have any effect now unless they went over what they were in 07.

Well heres one of the reasons.

Lots more on this article here: http://www.bbc.co.uk/news/business-16223864

You seem to be dismissing mortgage owners reducing their mortgages.
IIRC mortgage debts was being paid off in record numbers just the other month.

This is an overall average andaffected by as stated, energy, VAT and household bills, one of which is likely to be rent which is also increasing.

If you want to delve further into this, I would hazzard a guess that homeowners are less affected than renters with regards to the impact on their disposable income.

Essentially confirming that it's currently better to be a home owner than a renter.

michaels

Mine is 2k less pcm than last year

Thrugelmir

IveSeenTheLight wrote: »

You seem to be dismissing mortgage owners reducing their mortgages.
IIRC mortgage debts was being paid off in record numbers just the other month.

Trouble is, this has little short term impact. Mortgage debt is going to overhang the economy for at least a decade.

wotsthat

Well the CML only recently said that October 2011 was the most affordable for mortgages in nearly a decade. Being £46/ month down over the last year isn't to be sniffed at but being a homeowner probably helps to mitigate some of these extra costs.

These 'homeowners on the edge' arguments are quite circular. For sure homeowners have been enjoying lower rates for some time. My argument has always been that if the average mortgage holder of 2007 was able to afford 5% interest then they'd be able to afford 5% now on what would be a reduced debt.

What has happened to the interest saved in the last few years? Some will have spent it, some will have maintained payments to accelerate debt reduction and others will have overpaid. As low rates persisted I suspect that a number of mortgage holders will have diverted mortgage payments to higher yielding savings instead - this money will pour back into mortgages when rates rise.

The argument will not be solved until rates rise and we see what happens. My view is that rate rises, especially if combined with a recovering economy, will have a close to zero effect on arrears and repossessions.

shortchanged_2

wotsthat wrote: »

The argument will not be solved until rates rise and we see what happens. My view is that rate rises, especially if combined with a recovering economy, will have a close to zero effect on arrears and repossessions.

I Think it will depend very much on wage rises in comparison. Don't forget many public sector worker pay rises have been capped at 1% a year for the next two years, so if inflation is above that it will continue to eat into their income level. This would be made even worse if interest rates rise as well.

wotsthat

shortchanged wrote: »

I Think it will depend very much on wage rises in comparison. Don't forget many public sector worker pay rises have been capped at 1% for the next two years, so if inflation is above that it will continue to eat into their income level. This would be made even worse if interest rates rise as well.

I don't disagree. There's a squeeze - if people are on the edge then an interest rate increase will push them over. If they aren't then they'll probably need to cut back.

My view, and that's all it is, is that in general people aren't looking over a precipice so the effect of a rate rise will be limited in terms of arrears and repo's.

Something's going to give. A reduction in consumer spending? Upwards pressure on pay? More likely we'll see no rate rises for a while anyway and, hopefully, inflation has peaked.

DervProf

IveSeenTheLight wrote: »

Essentially confirming that it's currently better to be a home owner than a renter.

So the bulls win, and everything is alright then.

It's all very well championing the cause of landlords, and showing disrespect to those who rent, but I think this is a bad situation for the UK. The wealth gap appears to be widening ever more, and the prospects for an increasing number of the younger generation don't look too clever.

wotsthat

DervProf wrote: »

So the bulls win, and everything is alright then.

It's simply another signal that home ownership in the long term is one of the best ways to ensure future financial security. Nothing to do with bulls, bears, winners, losers or disrespecting renters.