According to the Bank of England's quarterly bulletin, higher mortgage payments are starting to put the squeeze on consumer spending.
Its research shows that just fewer than 50 per cent of people with mortgages had a variable-rate mortgage in the year ended September 2007. On average, mortgage repayments for these homeowners increased by £45 per month, or approximately eight per cent.
Meanwhile, 16 per cent of those with mortgages said that their fixed-rate deal had come to an end during the year. Although 21 per cent said repayments had not increased, monthly repayments had risen for the majority. Rates rose £59 per month, or around 12 per cent, on average. Moreover, around a quarter in this category reported an increase of more than 20 per cent.
If these findings are representative of the UK as a whole, mortgage repayments for those whose fixed-rate deals had expired during the year before the survey had increased by around £300 million per quarter. Including the price rises for those with variable-rate mortgages, repayments were around £900 million per quarter higher than they would have been if there had been no mortgage rate increases for the year.
Around half of homeowners have had to cut back on spending to meet higher repayments, while around 10 per cent had starting working more hours and a further 10 per cent had used savings or increased borrowings. For those whose payments are likely to increase when their fixed-rate deal ends, 39 per cent said they would reduce spending when the time came, nine per cent said they would increase their working hours and 8 per cent claimed to have already started making spending cutbacks.
Chief economist and executive director for monetary policy at the Bank, Charles Bean, said: "The survey suggests that around half of mortgagors experiencing an increase in mortgage payments had cut back their spending. But the proportion of mortgagors reporting difficulties in paying for their mortgage remains relatively low and appears to have changed little over the past year."
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