Why savers without a mortgage are £1,000 worse off
Pensioners and savers without mortgages have taken a big hit since the credit crunch.
New figures from the Office for National Statistics have revealed just how the extended period of low interest rates have hurt those without a mortgage.
Its latest report looking at disposable incomes revealed that while those with a homeloan are marginally better off than before the credit crunch, those without a mortgage are as much as £1,000 worse off.
The difference in disposable income
According to the ONS, when certain outgoings, including mortgage payments, are not taken into account the average disposable household income fell from £15,694 in 2007 to £14,506 in 2014, a difference of £1,186.
However, when mortgage interest costs are included, the ONS argues that people overall are marginally better off than they were back in 2008.
In other words, pensioners and savers who have already paid off their mortgages have had it incredibly tough, with their disposable incomes taking a significant hit. But those with mortgages are better off than before the crunch.
The ups and downs of low interest rates
The Bank of England Base Rate has remained static at 0.5% for over six years, following drastic slashes at the end of 2008 and beginning of 2009.
As a result, banks have been paying very low interest rates on savings. At the same time, mortgage rates have also dropped, hitting record low levels.
The upshot of this is that while people without a mortgage have only experienced the negative effects of poor saving rates, those with mortgages have paid less on their repayments, countering the impact of low interest rates on their savings and leaving them better off overall.
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When will rates rise?
Bank of England Governor Mark Carney has hinted that a rate rise could take effect around the start of 2016, but said that any rises would be slow, and would take the Base Rate to half the historical average, which would be around 2-2.5%.
When the rates start to rise, the discrepancy in disposable income between those with and without mortgages should start to balance out, as returns on savings accounts increase and mortgage repayments start to ramp up.
However, Mr Carney has also said that it would take around 18 months for the wider economy to feel the effects of a Base Rate rise.
If you still want to take advantage of incredibly low mortgage rates before Base Rate increases, check out The best fixed rate mortgages and The best tracker rate mortgages. Or if you want to get the most out of your savings, read Where to earn most interest on your cash.
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