interactive investor comments on the latest Bank of England money and credit figures.
Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The latest money and credit figures point to further signs that we have become more cautious in response to the rising cost of borrowing as part of an ongoing battle to combat stubbornly high inflation.
“Excluding the period since the onset of the Covid-19 pandemic, mortgage borrowing has plunged to the lowest level since records began as high mortgage rates, in tandem with high house prices and a higher cost of living, has made ownership uneconomical for many would-be buyers.
“Many homeowners and those reaching for the first rung of the property ladder are struggling to get their heads around the recent uptick in mortgage rates, which has added hundreds of pounds to monthly repayments at a time when inflation is still running hot. Just as the hangover effect from the instability in the mortgage market in the wake of the mini-budget market chaos last year, was starting to dissipate, rates ticked up again in April - adding to affordability woes.
“The mortgage pain is far from over as concerns over how high interest rates will go has resulted in the withdrawal of 7% of mortgages from the market since last week, and an increase in average rates on two- and five-year fixed deals. The cost of homes remains unacceptably high for many would-be buyers, who are consigned to the sidelines until they can make the numbers work.”
Myron Jobson says: “Higher interest rates prompted Britons to stash more cash in their savings accounts. Our enthusiasm for saving has been renewed following a reprieve in savings rates from rock-bottom levels after numerous consecutive increases to the base rate. However, it is also important to bear in mind that savings rates remain in the doldrums in real terms because of high inflation, meaning you'll be able to buy less with your money. In fact, the real value of cash savings has been eroded at an alarming rate in recent history.
“But there is also a budding appreciation of the importance of building an ample cash buffer amid rising prices - three months’ salary is a good rule of thumb.”
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