News: Homeowners Are Feeling The Pinch

Mortgage borrowers are saving and borrowing less as they feel the weight of recent interest rate rises.

Families with mortgages are feeling the pinch of five recent rate rises, and are borrowing and saving less as a result, a new survey has found.

The latest `borrowing monitor' from Alliance & Leicester, which quizzed 2,245 people, has revealed that many mortgage borrowers are under strain as bigger interest payments take a sizeable chunk out of household incomes.

Savings in Britain reached a record low in the first quarter of the year, with people squirreling away just 2.1% of their incomes.

Those with mortgages are typically saving the least of all -- less than half (48%) as much money as those without them.

This contrast is also apparent when looking at borrowing unrelated to mortgages. Unsecured borrowing in the UK has been growing at its slowest pace on record this year -- and mortgage borrowers have become particularly reluctant to take out such loans. 

In fact, by the second quarter of this year, the borrowings of households with mortgages actually fell, even though the overall market continued to see some growth.

Credit card use is a clear example of this. In the second quarter of 2007, mortgage borrowers cut their credit card balances at twice the pace of the overall credit card market.  

Alliance & Leicester's Sean Murphy said that although average interest rates on unsecured borrowings have actually fallen over the last 12 months, this has not been enough to tempt mortgage borrowers to take on more unsecured debt.

"Their family budgets have been under pressure and they have cut their cloth accordingly", he added.

The pressure on homeowners will ease slightly if and when interest rates come down from the current level of 5.75%. Many economists now believe the next move will be down rather than up -- but it may not happen for a while.

A recent Reuters poll of 56 economists indicated that the official rate will remain unchanged until the end of the year, falling to 5.5 percent in the first quarter of 2008 and to 5.25 percent between April and June.

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