According to figures released by GfK NOP, the Consumer Confidence Index score dropped by a point over the course of June to stand at -3. The fall was attributed to the decision by the Bank of England's monetary policy committee (MPC) to increase the base rate to 5.5 per cent, which could impact upon borrowers' ability to make secured loan repayments.
Rachael Joy, consumer confidence representative for GfK NOP, said: "After an eventful May, this month sees the higher interest rates taking effect. Consumers have a more negative impression of the general economic situation with a six-point drop this month. Whilst at the same time, consumers are also taking advantage of the situation and the 'now is a good time to save' index has increased this month and now stands at its highest level in recent years."
Figures from the market research company also indicated that Britons are in a record mood to save money. In a move which could see them offsetting debt management and loan payment difficulties, the index for those thinking "now is a good time to save" rose by one to +36, the highest level GfK NOP claimed to have recorded in recent years. This figure was also reported to be four points higher than the score for last June.
Meanwhile, Britons' views towards their personal finances were said to have remained unchanged this month. The index recording consumers' view of their monetary situation over the past 12 months was reported to be +3 - the same figure recorded in May. Opinions about personal finance during the forthcoming year had also remained consistent, remaining at +13, a score which was also noted in June 2006. The study also indicated that trend for making major purchases rose throughout June to +6. However, this represents a five point drop compared with the same time last year.
Overall, consumers' views about the British economy over the past 12 months were said to have seen "the biggest change" throughout the course of June. GfK NOP report that the index has fallen by some six points to a score of -24. Meanwhile, outlook about the general monetary situation was noted to have stayed at the May figure of -10. However, this was some eight points higher from the same study carried out in June last year.
However, according to a study released by financial charity Credit Action there is a shortfall of savings among Britons. Just over one in four (27 per cent) consumers are said to not have any money set aside, with a further 25 per cent holding savings of less than ?3,000. Meanwhile, three million Britons describe themselves as "frivolous spenders", as they decide to make purchases based on desirability instead of affordability. With two thirds of Britons subscribing to 'the buy now, think later culture' which may well cause them problems when it comes to making loan payments.
Five interest rate hikes in less than a year have prompted a rush of remortgages as homeowners frantically search for cheaper options, rather than reverting to standard variable rate mortgages once their fixed rate deals expire. Since August 2006 the Bank of England base rate has jumped by 1.25 percentage points to its current rate of 5.75%, representing a real rise of almost 28% in the true cost of repaying mortgages. Borrowers on fixed rate deals due to expire and revert to standard variable rate, have been driving the fixed and discounted remortgage market.
However, many of those who have remortgaged may regret it in the near future as many analysts are predicting the end of the interest rate rises, with a maximum Bank of England rate of 6% predicted for the end of the year. If the analysts are right in their assumptions then homeowners would be better advised looking at SVR mortgages rather than opting for the fixed rate deals at the top of the market. Mortgages tied into the base rate, such as trackers are being favoured over discounted products as the latter can vary depending upon what rate the mortgage company decides to set their SVR, whereas a tie-in to the base rate leaves no room for doubt.
Ray Boulger, spokesperson for mortgage broker John Charcoal says: ?With a tracker mortgage, borrowers know exactly where they stand, as they have agreed at the outset what the margin will be over or under the base rate. But, with a discount you are at the mercy of the lender who could raise the SVR so much that the discount is meaningless. I believe that base rate has peaked, so unless you need that cast-iron certainty of knowing the exact amount of your mortgage repayments over the next few years, choose a variable rate tracker.?
With many lenders charging high fees for a growing number of borrowers are turning to tracker mortgages. Instead of paying a percentage of the remortgage amount as fees every two or three years, they have decided that it will be cheaper in the long run to stick with a tracker mortgage, just so long as there is no tie-in early repayment penalty.
Remortgages accounted for the vast majority of gross lending during the month of July according to the Council of Mortgage Lenders, emphasising the amount of lending to existing homeowners. It would appear that, despite ever-rising prices, the housing market is now showing real signs of slowing, as the interest rate increases are now finally starting to bite.
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