ROOF Lunchtime news – 13 August 2023

Rising interest rates mean more people are putting money aside, but the amount they are saving has fallen by one third compared to this time last year, according to Birmingham Midshires. Higher mortgages, petrol prices and utility bills, have squeezed savings levels to an average of £910 per person in the second quarter. The bank recommends people have three months’ salary put aside in case of financial emergencies – around £5,899 for those on an average income. The report comes on the back of research from the Office of National Statistics which revealed the lowest savings ratio since the 1960s.

Meanwhile, research from Scottish Widows shows more than one million pensioners (one in five) is still paying off a mortgage, and one in three is racking up average credit and personal debt of £5,900. With many buying a home later in life and state pensions not keeping pace with inflation, the problem may only get worse. The research suggests total debt of those over 65 has hit £57 billion, while pensioners’ average credit card and personal loan debt has risen by 42 per cent in the past year.

A Sunday Times investigation found Bentley-driving speculators are snapping up homes in ‘low demand’ areas targetted with government cash, and reaping large rewards. At one property auction in Hull, more than 20 run-down homes in the regeneration zone changed hands in less than an hour for £400,000. One property company is reported to be expecting a profit of £18,000 three months after buying one home in the city – equivalent to an annual return of more than 200 per cent. In some areas the government has had to spend up to £100,000 buying homes so they can be knocked down.

Buyers will pay more for sub-prime mortgages because of turmoil in the credit markets. DB Mortgages, owned by Deutsche Bank, this week pulled all its sub-prime products and is expected to increase their prices when relaunching the range of products later this month. Lenders are facing upward pressure on rates as capital markets funding becomes increasingly expensive and investors grow more cautious about buying bonds backed by riskier sub-prime mortgages. About 30 lenders, mainly investment banks, have recently moved into the UK sub-prime mortgage market which has led to fierce competition and a reduction in rates charged to borrowers with patchy credit history.

Defaults on UK subprime mortgages have been far lower than in the US but the level is rising. Last week the Council of Mortgage Lenders said that home repossessions had jumped 30 per cent year-on-year.