Households' fortunes 'mixed' in recession

15th December 2009

Householders' disposable income has dipped sharply in the downturn but low interest rates have saved many from debt problems, a report suggests. A safety-first attitude to savings was inspired, in part, by a fear of redundancy, the survey for the Bank of England found.

The poll, carried out in the autumn, found slightly fewer households had debt issues than a year earlier.

A separate report for the Bank showed that many companies have frozen pay.

The survey asked people about their income after paying tax, housing costs, loan payments and utility bills.

Unemployed people have suffered the biggest loss of monthly disposable income in the last year, with nearly half of them reporting the amount had dropped by more than £100 in the last year.

On average monthly disposable income for this group had fallen by £71. Manual workers saw their monthly available income drop by £51, and non-manual workers had witnessed theirs drop by £28.

"This may be because manual workers had been more affected by reduced overtime and shorter working hours," the report said.

The fluctuations in the housing market have created mixed fortunes for householders.

At the time of the survey in September, property values were 16% below the peak of autumn 2007. As a result, the proportion of the polled homeowners in negative equity had risen from 1% in 2007 to 5% in 2009.

On the flipside, low interest rates meant just over a half of mortgage holders saw the cost of their home loan repayments fall in 2009, with 15% of them seeing the bill drop by more than £200 a month.

Many of these people moved onto a cheaper standard variable rate when their fixed-rate deal came to an end.

For the first time, the survey polled householders about whether they had increased, or were planning to raise, their level of savings and why. About a quarter said that their savings were going up.

Fear of redundancy, the desire to reduce debts, extra personal commitments and extra disposable income were the main reasons for doing so.

"Renters were the least likely group to increase saving. This may partly be because they tend to have lower incomes and so less scope to increase saving," the report said.

Age was also a key factor, with young people saving primarily for a deposit to buy a house or flat, and the over 65s saving more because the value of their existing investments had fallen.

A separate report in the Bank's quarterly bulletin revealed that pay settlements negotiated between employers and employees had fallen sharply in 2009. The average pay deal was below a 2% rise.

Meanwhile, a poll by the Samaritans found that fears over job security and workplace stress were among the top five worries of people who contacted the charity.

"In the last year, Samaritans received five million calls and many of them were about the worries identified in this survey, with approximately one in every 10 calls linked to financial stress," said chief executive Catherine Johnstone.

"If people do not talk about their problems, they can build up over time and spiral into more serious emotional distress. "

Source: BBC News - Business