Between March 2008 and March 2009, the average monthly discretionary income of households with a mortgage rose from £892 to £989, an increase of 11% (£97).
After accounting for taxes and essential household bills, mortgage holders now have 48% of their net monthly income available to spend on 'non-essential' items; the highest for three years and compared with 45% in March 2008.
This is the first Halifax review of discretionary income by housing tenure. The review is compiled using a range of official statistics from the Office for National statistics (ONS), the Bank of England and the Council of Mortgage Lenders (CML). Essential spending is defined to consist of mortgage payments (interest and capital), council tax, food, clothing, water supply, electricity, gas and other fuels. Discretionary income is the income remaining left following spending on these items.
The sizeable rise in the average mortgage holder's discretionary income has been driven by a significant fall in mortgage repayments, which have dropped by 11% (£72) from a monthly average of £664 in March 2008 to £572 in March 2009. This decline reflects the significant falls in interest rates over the period with the average mortgage rate falling to 3.83% in March 2009 from 5.80% a year earlier. Clothing was the only other essential item to record a price decrease (-6%).
The reduction in mortgage repayments outweighed the rises in the cost of other 'essential' items. Over the past year, utility bills have risen from £91 to £105 a month, an increase of 15.5%; more than any other 'essential' spending category. Food prices saw the next largest increase (10.3%), adding an average of £19 to a household's monthly expenditure.
Lower interest rates have benefited some homeowners more than others. Those on a variable rate deal have seen a large fall in their monthly mortgage payments. In contrast, many of those on a fixed rate mortgage have received no such reduction.
