Bank of England's rate cut boosts consumer sentiment
Rising mortgage costs in July were partially offset by declining energy bills, with consumer confidence further bolstered by the Bank of England’s base rate reduction last week.
The latest Barclays Property Insights report has indicated that consumer spending on rent and mortgages saw a year-on-year increase of 5.7% in July, a significant jump compared to June’s 1.5% growth. However, on a month-to-month basis, rent and mortgage payments fell by 3.8%.
Ofgem’s recent energy price cap reductions contributed to a 7.5% decline in spending on utilities. Despite these fluctuations, consumer confidence in managing rent and mortgage payments remained steady at 53%.
Barclays also noted that the Bank of England’s rate reduction had a positive impact on consumer sentiment, with 57% of respondents feeling more confident in their ability to live within their means, and 51% expressing greater confidence in their household finances.
In addition, 27% of mortgage holders expect their monthly costs to decrease, though 50% anticipate no change, likely due to the prevalence of fixed rate mortgages.
“The base rate reduction on August 1 was certainly a promising sign for UK homeowners and the wider economy, with over half of consumers saying it made them more confident in their household finances,” said Mark Arnold (pictured), head of savings and mortgages at Barclays.
“However, it’s important to remember that unless you’re a homeowner on a variable or tracker mortgage, it may be some time before you notice a tangible difference in your monthly bills. For example, those on fixed rate mortgages will need to wait until they roll off or remortgage to determine whether their repayments will rise or fall, and for renters, there’s even less of a clear cause and effect when it comes to pricing.”
The report also highlighted that renters are feeling the impact of rising costs more acutely than homeowners. Eight in 10 renters expressed concern about the effect of increasing housing costs on their personal finances, nearly double the rate of homeowners. Additionally, renters are less likely to have emergency savings, with only 17% having funds set aside compared to 24% of homeowners.
Despite widespread homeownership or aspirations towards it, the report found that many consumers are unfamiliar with key factors influencing mortgage rates. While 88% of respondents were aware of the Bank of England base rate, 26% admitted they did not understand what it means. Furthermore, 35% had never heard of the Monetary Policy Committee, and 49% were unfamiliar with swap rates, which help determine pricing for fixed rate mortgages.
There are signs, however, that consumers are becoming more engaged with financial news. The report noted that 15% of renters and mortgage holders have shown increased interest in UK economic news over the past year, particularly among those aged 18 to 34.
For those seeking more information on how the base rate impacts their mortgage, news coverage was the top source, followed by consumer advice websites and mortgage providers. Among 18- to 34-year-olds, social media and advice from friends and family were also popular sources of information.
“While it’s by no means mandatory for homeowners to understand the inner workings of the mortgage market, it’s encouraging to see consumers staying on top of financial news, so they can be empowered to make the best financial decision when the time comes,” Arnold said.
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