Lasting benefits of lower interest rates

In my last column I spoke about the multitude of house price indices and would now like to turn my attention to mortgage affordability.

Woolwich’s recent research on the subject generated some interesting findings.

The main thrust of the work showed that in terms of mortgage payments measured against take-home pay, home owners in England and Wales were on average 20% better off in December 2009 than in December 2008.

In December 2008 owners were on average spending £196 of every £1,000 of their take-home pay each month on their mortgages. A year later this had dropped to £157. The average monthly payment for home owners now stands at £497 compared with £607 a year ago.

Of course, much of this fall can be accounted for by the large number of individuals sitting on fantastic Bank of England base rate tracker deals.
But what are consumers doing with the extra money in their pockets? Well, low interest rates have provided an opportunity for them to save in a way they might not have been able to before, or to overpay and shave some time off their mortgage terms.

So the Bank’s medicine has worked well for borrowers and has been good news for the economy too because it has freed up disposable income for spending.

Even with a modest upturn in interest rates likely in the second half of this year it seems that consumers will benefit for some time yet.

DAVID FINLAY, INTERMEDIARY BUSINESS DIRECTOR, BARCLAYS