Mortgaged households face 3% drop in disposable income

UK Finance’s latest Household Finance Review found the average mortgaged household will suffer a three percent reduction in disposable income after mortgage, credit commitments and living costs.

The Household Finance Review, which reported on trends in household spending, saving and borrowing during Q122, also included analysis on the potential impact of the cost-of-living squeeze households face for the remainder of 2022.

The cost-of-living squeeze will be felt “most acutely” in lower-income brackets, which have around half the spare income of those in higher brackets, even before cost-of-living pressures are factored in.

Most borrowers across all income brackets would qualify for the same mortgage now as they did last year.

However, some borrowers would not qualify for the size of loan granted in 2021, due to the new additional costs. UK Finance said this may result in a “softening of demand” for mortgages this year.

Q122 house purchase activity and mortgage lending

The number of people moving property fell by 42% compared to Q121, and the number of first-time buyers was down by 12%.

UK finance said it expected mortgage activity to be strong through 2022, but it will be driven by customers reaching the end of fixed rate deals, and looking to switch to better rates.

This marks a contrast with previous years when a significant element of remortgaging activity involved borrowing substantial sums of additional money, in many cases to fund further property purchases.

Although there was a decrease in home movers and first-time buyers compared to the unprecedented highs of last year, numbers remain slightly above 2019 levels as the ongoing effect of the pandemic drives demand for more space.

Eric Leenders, managing director of personal finance at UK Finance, said: “During the first quarter of 2022 we saw the spread of the Omicron variant of Covid and consumer prices beginning to rise, although this did not translate to any drop off in spending or mortgage borrowing.

“However, we know that some people, particularly those on lower incomes, will already be feeling the strain. There are significant additional pressures on household finances in the second quarter, most notably from energy price rises and tax changes.

“Our analysis shows that this year there will be a three per cent fall in disposable incomes for the average mortgaged household, which may result in more subdued spending and borrowing.”