No surprise there’s a housing bubble as latest Bank of England figures confirm bonanza for mortgage holders

by Dr. Ros Altmann

(All material on this page is subject to copyright and must not be reproduced without the author’s permission.)

---

£100,000 Mortgage borrowers £3,300 a year better off

Savers with £100,000 saved up are now £4,000 a year worse off

Analysing the Bank of England’s statistics on interest rates in mortgage and savings markets since 2007 shows fascinating results. The extent of income gains for mortgage borrowers is startling and the losses for savers are significant. Those with the largest mortgages benefit most, of course, which has particularly benefited people living in London and the South. Meanwhile all savers have lost out as a result of record low rates.

£100,000 tracker or SVR mortgage repayments now c.£3300 a year lower than 2008: Loan repayments on a £100,000 mortgage are now £3200 a year less, giving borrowers substantial extra income as a result of the drop in mortgage rates since end 2007. Those with tracker mortgages have seen an income gain of £3,280 a year lower and those on Standard Variable Rates are paying £3290 a year less than in December 2007. The huge rise in housing prices is hardly a surprise when mortgage borrowers are receiving such an income boost. Even though house prices have risen, the availability of cheap loans makes initial repayments seem much more affordable. Is this sustainable?

One third of households with mortgage have had enormous income boost: The huge gains for mortgage holders may help explain the support for low rates that has persisted even in the face of economic recovery. Although only one third of households actually has a mortgage, while the other two thirds either own their home outright or are renting, the interests of those with mortgages have been driving the policy agenda. Those with mortgages have a vested interest in opposing rate rises. Meanwhile, savers have little voice or power to alleviate their losses, or are being forced to take much more investment risk.

Savers with £100,000 is Cash ISA or fixed bonds are losing at least £4,250pa income: By contrast, a saver with £100,000 of savings in Cash ISAs or fixed rate bonds is more than £4,000 a year worse off than in December 2007 due to the interest rate falls. The average Cash ISA in December 2007 paid £5350 a year interest, but by December 2013 it was just £1090 a year – £4260 a year lower. The average fixed rate bond paid £5990 a year in 2007, but only £1440 a year in December 2013 – a loss of income of £4550. The Table below summarises the borrowers vs. savers situation

Interest saved on £100,000 mortgage vs. interest lost on £100,000 savings

	Annual interest Dec 2007	Annual interest Dec 2013	Difference
BORROWERS
£100,000 tracker mortgage	£6200	£2920	£3280pa gain
£100,000 SVR mortgage	£7680	£4390	£3290pa gain
SAVERS
£100,000 savings in Cash ISA	£5350	£1090	£4260pa less
£100,000 savings in fixed rate bonds	£5990	£1440	£4550pa less

Source: Bank of England statistics, Table G.13

– uses closest comparable figures

ENDS
Dr. Ros Altmann