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Savings fall as housing costs rise

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Households are saving a smaller proportion of their income than they have for over 50 years, according to government figures.

The ‘households’ saving ratio’ fell to an annual record low of 4.9% in 2017. A lower ratio hasn’t been recorded since records began in 1963.

Growth in households’ spending – particularly on housing – has outpaced the growth in households’ income, reducing the savings’ ratio. Households’ expenditure rose by £46.7 billion and contributed negatively to the saving ratio, while gross disposable household income increased by only £29.3 billion.

However, the savings ratio has also been impacted by adjustments to pension entitlements. These fell by £8.5bn during the year. This contributed to a fall in gross savings (a measure that indicates the amount households have available to save or invest) of £25.9 billion year-on-year.

The latest estimates suggest households were net borrowers in 2017 for the first time since records began in 1987; this reflects five consecutive quarters of net borrowing by households. Households accumulated slightly more debt in 2017 than they did financial assets for the first time since records began in 1987.

However, household incomes are rising, albeit only just – the figures show growth in disposable incomes slowed to 0.1% from October to December compared with the previous quarter, as the impact of inflation intensified.

Shakila Hashmi, money manager,, said: “The level of debt held by UK households is a cause for concern. With the savings ratio at a record low, and the fact that UK households are net borrowers for the first time since records began in 1987, effective finance management is more important than ever. People should look at how much debt they currently hold as well as the interest being paid on that debt and work out whether they are on the best deals.

“Switching credit cards and evaluating your mortgage options to ensure you are on the best rate possible is essential, particularly given the upcoming possibility of rising interest rates. However, with rising interest rates we will likely see an improvement in the rates of return on ISAs and other savings accounts. This should hopefully bring us to a point where rates are higher than inflation, meaning people get an actual return on their savings. This should help to drive more people to put some money away for a rainy day and lift that savings ratio up again.”


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