Banking News Higher Cost Of Living Eats Up Savings And Deposits 1270
Higher cost of living eats up savings and deposits
19 March 2008 / by Joy Tibbs
According to Abbey Mortgages, almost four times as many first-time buyers are taking money out of their deposit savings compared with a year ago, with 42 per cent topping up earnings with money from their nest egg. The value of savings spent totalled £1.98 billion.
Director of Abbey Mortgages, Nici Audhlam-Gardiner, says: “First-time buyers may be more tempted to dip into their deposit savings this year because of the uncertainty in the market and prospect of falling house prices.
“However there are still very good reasons for people to get on the housing ladder, as property continues to be a good investment for the longer term.”
And, although the average first-time buyer now needs to find a deposit of £22,800 before they can get on the property ladder, higher living costs are not the only barrier to deposit savings.
“While day-to-day living expenses prompted 53 per cent of people to dip into savings, 50 per cent dipped into the deposit fund for a holiday and four per cent did so to pay for a wedding or other celebration.
Fashion items and gadgets proved tempting enough for 52 per cent to raid their property pot, while cars caused 25 per cent of potential first-time buyers to raid savings; 77 per cent of whom were men.
“Saving £23,000 or more for a deposit is no mean feat, particularly if you let distractions get in your way. But if you’re single minded and set yourself a realistic savings target then you could find yourself making an offer on a house sooner than you think,” comments Ms Audhlam-Gardiner.
And research from Birmingham Midshires reveals that first-time buyers are not the only ones to be seeking refuge in savings. Its Saving Britain campaign shows that the number of people saving, and the amount saved has risen in recent years. However, higher weekly living costs have prompted more people to rely on savings to top up earnings.
The study found that 69 per cent of people in the UK are paying money into savings accounts compared with 61 per cent in 2004. Moreover, the amount saved has risen from £587 over a three-month period in 2004 to £813 for the same time span now, a rise of more than 38 per cent.
Despite this, the cases of people dipping into savings has also risen, so that while the average three-month savings balance was £368 in 2004, the average savings balance deficit in 2008 is £148.
Director of savings operations at Birmingham Midshires, Jason Robinson, says: “We are pleased that the savings message is getting through and we are encouraged by the results that more people in the UK are today building up a nest egg.
“However, we must urge savers to be careful about the amount of money they are taking out of their savings accounts. The general rule of thumb is to have at least three months’ salary set aside in order to cope in the short-term with any financial emergency that comes along.”
Head of savings at Moneyfacts.co.uk, Rachel Thrussell, adds: “The figures show that families have less disposable income than they once did and they are having to dip into any existing savings to get by. With savings rates at some of the highest levels we have seen for a while, there has never been a better time to build that nest egg back up again.”
© Fair Investment Company Ltd