Warning to anyone with a mortgage that exceeds the cost of living

The average household that took out a mortgage in 2021 will face a 3% reduction this year in the disposable income left over after mortgage, credit obligations and living expenses, according to industry association UK Finance. The cost of living tightness will be felt especially acutely in lower income earners, who have about half the extra income of those in higher brackets, even before factoring in cost of living pressures, it added.

It found that most borrowers in all income brackets now still qualify for a mortgage of the same size as last year. However, there will be some borrowers who would not qualify for the size of the loan made last year due to the new additional charges, which could lead to a decline in mortgage demand this year, UK Finance said.

While mortgage activity is expected to be strong this year, it will largely be driven by customers coming to the end of their fixed-income deals and looking to switch to a new rate, it added. This is in contrast to previous years, when a major part of the refinancing activity involved borrowing significant sums of additional money, in many cases to finance further property purchases.

Credit card spending and personal loans both rose in the first quarter of 2022 and returned to pre-Covid trends, the report added. After sharp declines during the pandemic, credit card balances outstanding in the quarter were broadly stable at £56 billion.

There were £4.7 billion in new personal loans from major banks in the first quarter. Savings growth slowed, following substantial increases in 2020 and 2021. A total of £1.1 trillion is in savings accounts, of which 84% is in direct access accounts.

The use of overdraft rose in the first quarter but remains below pre-pandemic standards. The total overdraft of around £5.5 billion is about 15% below the amount seen in 2019. Eric Leenders, general manager of personal finance at UK Finance, said: “During the first quarter of 2022 we saw the spread of the Omicron variant of Covid and consumer prices started to rise, although this did not translate into a decline in spending or borrowing mortgages.

“However, we know that some people, especially those on lower incomes, will already feel the pressure. In the second quarter there is significant additional pressure on household finances, in particular due to increases in energy prices and tax changes.

“Our analysis shows that this year there will be a 3% drop in disposable income for the average household with a mortgage, which could lead to more moderate spending and borrowing. All clients concerned about meeting their loan payments should speak to their lender early to discuss the tailored support available to them. Lenders will not give customers a subscription they cannot afford.”

The review for household finances was developed in collaboration with Accenture. Krishnapriya Banerjee, director of Accenture’s UK banking practice, said: “While the first quarter presented a fairly stable picture of UK household finances, further potential rate hikes and boom in energy prices mean the full effects of the rising cost of living are yet to materialize. bite the household budgets.

“While many banks have started making provisions to support their most vulnerable customers, they also need to focus on expressing empathy for consumers affected by this crisis.

“Banks need to strike the perfect balance between delivering digital services and people-centric banking to help customers navigate this challenging situation.”

Leave a Comment