Interest rate cuts hand mortgage holders more spending power
Decreasing interest rates have raised mortgage holders' discretionary income, allowing them more spending power than they've seen in years.
Since March 2008, households with mortgages have seen their monthly discretionary income - spending money left after buying the essentials - increase by 11 per cent from £892 to £989.
The change was driven by plummeting mortgage costs. The average interest rate fell from 5.8 to 3.83 per cent over the past year - a drop significant enough to outweigh increasing utility bills and food prices.
"Over the past year, homeowners with a mortgage have seen their discretionary income rise by more than a tenth on average," said Halifax economist, Susan Thiru.
"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."
Those who aren't benefitting from the declining interest rates are homeowners without mortgages. The 15 per cent rise in fuel prices has dealt a blow, seeing costs go up from £91 a month to £105.
"Other households have not fared as well with many suffering as a result of the significant increase in fuel bills," she added.
Those on a fixed mortgage have seen no decrease in their mortgage repayments at all while renters have seen relatively little change in discretionary income level.
"Clearly, many mortgage holders are benefitting from record low interest rates and the situation will be less favourable when rates eventually begin to rise," Ms Thiru continued.
"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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