Has Your Disposable Income Increased?

12/01/2009

For many, we suspect that the immediate reaction to the above question is likely to be a resounding NO. However, for those homeowners who are on a variable/ or tracker mortgages the opposite is likely to be true. Indeed, for some fortunate borrowers, all other things being equal, they will be experiencing a significant reduction in their monthly outgoings.

In the last few months bank base rates have reduced from 5% to the new (current!) historical low of 1.5%.

Lenders have reacted differently to the recent base rate reductions but all in all, over the last few months most lenders have reduced rates by a significant extent.

For those that have been fortunate enough to have the previous rate reductions from 5% down to 2% passed on in full, according to comparison website Uswitch “this has amounted to a saving of £2622pa for a customer on an average two year tracker deal on a £150,000 mortgage”. £218.50 per month is clearly a very substantial reduction indeed on a households monthly outgoings.

In order to fund a mortgage of £150,000, as a rule of thumb we would anticipate that a combined salary of around £40,000pa is required.(3.75 times salary). Based upon this assumption the annual saving would therefore represent 6.5% of salary.

To look at this another way round, it would be the equivalent of receiving a pay rise that increases your take home pay by 6.5%. Not bad in a climate where inflation is reducing quickly . The above figures also exclude any possible further benefit from the last 0.5% base rate reduction that has just been made.

Of course, a good proportion of households continue to elect for the certainty provided by fixed rate mortgages which generally remain at competitive rates compared to the medium/long term average. For some borrowers their fixed rate period will be expiring in the short term and they may also therefore see a reduction in their outgoings.

For those who decide to move home and have a good level of equity available there is the potential to be able to access mortgage rates at historically low levels. It is of course important to seek independent financial advice.

The above factors together with the falls in house prices is ensuring that property is becoming more affordable. Some are now seeing this as an opportunity to buy a HOME that was previously beyond expectations.

If you are thinking of selling or buying please contact your local Aitchisons office for a marketing appraisal.

Featured Properties