Quarterly Bulletin
Household Sector Articles
| 2009 Q4 | The financial position of British households: evidence from the 2009 NMG survey  (637k) (By Tomas Hellebrandt and Silvia Pezzini of the Bank's Monetary Assessment and Strategy Division and Jumana Saleheen and Richard Williams of the Bank's Structural Economic Analysis Division). The severe recession of the past year might be expected to have put the financial position of British households under considerable strain. Unemployment has risen significantly, credit conditions have tightened and many homeowners have seen their housing equity eroded. But many borrowers have also benefited significantly from the effects of lower mortgage interest rates. Evidence from the latest survey of households, carried out for the Bank by NMG Financial Services Consulting in late September and early October, shows how these and other changes impacted on households' budgets and their decisions on whether to spend or save. Despite the weak economic backdrop, a slightly smaller proportion of households reported problems repaying their debts than in the 2008 survey. Partly this was because around half of mortgagors had benefited from lower interest rates. Around a quarter of households had increased or planned to increase saving. The raw survey data are available in Excel format  (3.5mb).
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| 2009 Q3 | Household saving (716k) (By Stuart Berry and Richard Williams of the Bank's Structural Economic Analysis Division and Matthew Waldron of the Bank's Conjunctural Assessment and Projections Division). Household decisions on whether to save or spend play a key role in the outlook for aggregate demand. A range of factors could help to explain the fall in the household saving ratio over the period 1995 to 2007. Declines in long-term real interest rates, looser credit conditions, rising asset values and greater macroeconomic stability are all likely to have reduced the incentive or the need to save. Lower household saving was also offset to some extent by higher corporate saving. Since 2007, the financial crisis and subsequent recession have unwound some of these factors and may continue to lead to a rise in household saving. |
| 2009 Q2 | The economics and estimation of negative equity (432k) (By Tomas Hellebrandt of the Bank's Monetary Assessment and Strategy Division, Sandhya Kawar of the Bank's Systemic Risk Assessment Division and Matt Waldron of the Bank's Structural Economic Analysis Division). Negative equity occurs when the market value of a house is below the outstanding mortgage secured on it. As house prices fall, the number of households in negative equity tends to rise. Between the Autumn of 2007 and the Spring of 2009, nominal house prices fell by around 20% in the United Kingdom . There are no data which accurately measure the scale of negative equity. Three estimates presented in this article suggest that around 7%–11% of UK owner-occupier mortgagors were in negative equity in the Spring of 2009, although for most of those households, the total value of negative equity was relatively small. The effects of negative equity can be painful for those households concerned. Negative equity can also have implications for both monetary policy and financial stability, which are discussed in this article. These effects are likely to depend on developments elsewhere in the macroeconomy and financial system. |
| 2008 Q4 | The financial position of British households: evidence from the 2008 NMG Research survey Understanding dwellings investment |
| 2007 Q4 | Household debt and spending: results from the 2007 NMG Research survey (521k) (By Matt Waldron of the Bank's Structural Economic Analysis Division and Garry Young of the Bank's Monetary Assessment and Strategy Division.) This article summarises the main results from the latest survey carried out for the Bank by NMG Research in late September about the state of household finances. There was a slight increase in financial pressure among renters, continuing a recent trend. Mortgagors appeared not to have experienced any increased difficulty despite the increase in policy rates over the year. Partly, this reflects the widespread use of fixed-rate mortgage products. Credit conditions appeared to have tightened a little for renters, but loosened for mortgagors over the year to September. The raw survey data are available in Excel format (1.7mb)
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| 2007 Q3 | The Bank of England Credit Conditions Survey (417k) (By Ronnie Driver of the Bank's Monetary Assessment and Strategy Division.) The Bank has for many years held regular discussions with major UK lenders and money market participants to discuss trends in credit markets. Earlier this year, the Bank began supplementing these discussions with a formal Credit Conditions Survey, similar to those already conducted by the US Federal Reserve, the Bank of Japan and the European Central Bank. The survey is intended to assess trends in the demand for, and the supply of credit, including terms and conditions. It covers both household and corporate lending markets. Although the concept of the survey predates the recent movements in financial markets, the first results of the survey, which will be published on 26 September, will provide a good opportunity to assess trends in credit conditions. This article introduces the survey. |
| 2007 Q1 | The role of household debt and balance sheets in the monetary transmission mechanism (451k) (By Andrew Benito, Visiting Scholar, International Monetary Fund, Matt Waldron, Garry Young and Fabrizio Zampolli of the Bank's Monetary Assessment and Strategy Division). There is considerable uncertainty about the effect of household debt on the macroeconomy and its role in the monetary transmission mechanism. This article summarises conclusions from recent Bank of England research aimed at shedding light on this issue. It argues that the extent to which levels of household debt affect the outlook for the economy and the way in which the economy responds to unexpected developments, depends on the circumstances of individual borrowers and lenders, as well as wider economic conditions. Recent evidence suggests that there has been little difference in the amount by which the spending of high and low debt households has responded to changes in those households' financial position. This is likely to be because the benign economic environment and favourable lending conditions have made it easier for households to smooth over adverse shocks. Nevertheless, adverse interactions between debt, house prices and consumption could arise in other circumstances. As such, there is a need to keep this situation under review by continued monitoring of household and lender balance sheets. |
| 2006 Q4 | The state of British household finances: results from the 2006 NMG Research survey (489k) (By Matt Waldron and Garry Young of the Bank's Monetary Assessment and Strategy Division). This article summarises the key results from the latest survey carried out for the Bank by NMG Research about the state of household finances. There was little change in the proportion of households who reported problems with their unsecured debt, although there was a small increase in the proportion of mortgagors having difficulty paying for their mortgage. The share of overall income accounted for by households reporting either type of problem was relatively small, suggesting that any impact on aggregate consumer spending is likely to have been muted. The most common explanations given for debt problems were temporary cash-flow shortfalls and overspending; the most popular way of resolving these issues was to cut back spending. Very few households said they considered bankruptcy a solution to their debt problems. The raw survey data are available in Excel format (944kb) |
| Summer 2006 | House prices and consumer spending (410k) (By Andrew Benito, Jamie Thompson, Matt Waldron and Rob Wood of the Bank's Monetary Analysis area). This article explores the complex relationship between house prices and consumer spending. It explains that the strength of the relationship can vary considerably over time. And it highlights the key roles that both common factors and causal links have played in the weakening association between house prices and consumer spending in recent years. |
| Spring 2006 | The distribution of assets, income and liabilities across UK households: results from the 2005 NMG Research survey (562k) (by Richard Barwell of the Bank's Inflation Report and Bulletin Division and Orla May and Silvia Pezzini of the Bank's Systemic Risk Assessment Division). This article summarises the key results from the latest survey carried out for the Bank by NMG Research about the state of household finances. A relatively small proportion of households accounted for a large amount of the assets owned, income earned and debts owed by the whole sample. The majority of households appeared to be comfortable with their finances. But there were a small number of households who appeared to be in distress: typically they had below-average incomes and no or not many assets to draw on. The proportion of the sample in financial distress was little changed from a year earlier. The survey indicated that very few people viewed bankruptcy as a solution to debt problems. The raw survey data are available in Excel format. (1.8mb) |
| Winter 2004 | British
household indebtedness and financial stress: a household-level
picture
(154k) (by Orla May, Merxe Tudela and Garry Young of the Bank's MacroPrudential Risks Division). This article summarises the main results of a survey carried out for the Bank in September 2004 about household borrowing, housing wealth and attitudes to debt. The survey was designed to provide a comprehensive, up-to-date picture of household indebtedness. It found significant differences between homeowners and renters: renters are more likely to have debt problems, but their share of total household debt is small. The vast majority of debt is owed by homeowners, very few of whom (by historical standards) show signs of having problems at present. While 40% of total outstanding household debt is owed by those spending more than a quarter of their gross income on servicing their debts, the share of debt owed by those currently with debt problems is lower than a decade ago. NMG Research survey questionnaire
(38k) |
| Autumn 2004 | How
should we think about consumer confidence? |
| Summer 2004 | The
economics of retail banking-an empirical analysis of the UK
market for personal current accounts
(97k) (by Céline Gondat-Larralde and Erlend Nier of the Bank's Financial Industry and Regulation Division). Understanding the economics of retail banking is important for the Bank of England in carrying out both its monetary stability and its financial stability function. In this article, we study the dynamics of the UK market for personal current accounts between 1996 and 2001. Analysing the evolution of banks' market shares and their pricing strategies, two questions are addressed: (i) Do bank market shares respond to price differentials? (ii) If not, why not? Our results point to customer switching costs as a key determinant of the nature of competition in the market for personal current accounts during the 1996 - 2001 period. They are thus broadly supportive of a number of initiatives that have since been undertaken to reduce such costs. |
| Spring 2004 | Durable
spending, relative prices and consumption
(122k) (by John Power of the Bank's Structural Economic Analysis Division). In real terms, the growth of durable spending has substantially outpaced that of spending on other goods and services since the mid-1990s. But that gap largely reflects the effects of falling relative prices: nominal spending on durables and on non-durables has grown at similar rates during that period. This article uses a simple framework to assess the behaviour of the real and nominal ratio of durables to non-durable spending in the long run. It also considers the current position of the ratios in more detail and provides some assessment of how we might expect them to have evolved given prevailing cyclical factors. |
| Winter 2003 | The
distribution of unsecured debt in the United Kingdom: survey
evidence
(116k) (by Merxe Tudela and Garry Young of the Bank's Domestic Finance Division). The Bank recently commissioned a survey asking people about their unsecured borrowing and whether it is a burden to them. This article summarises the main results. As of October, 34% of respondents had some form of unsecured debt, over and above that which they expected to pay off at the end of the month, and the average amount owed was around £3,500. Some people owed much more than the average: 26% of those with some debt owed more than £5,000. Around 10% of borrowers said that their unsecured debt was a heavy burden to their households, similar to earlier surveys. For purposes of comparison over time, the questions were based on those used in earlier surveys. The evidence suggests that the proportion of people with some debt has not changed since at least the late 1980s. While the average amount borrowed by debtors has increased, since 2000 the extra borrowing has been concentrated among those with household incomes above £17,500. Despite the rise in average debt levels in recent years, the proportion of people who consider their debt not to be a burden has increased. But, the amount borrowed and the share of unsecured debt accounted for by those who consider it a heavy burden have both increased. |
| Autumn 2003 | Trends
in households' aggregate secured debt
(100k) (by Rob Hamilton of the Bank's Structural Economic Analysis Division). The aggregate level of households' secured debt relative to their income has increased by about a quarter over the past five years, and has almost tripled since 1980. Using a simple model, this article concludes that much of this increase can be accounted for by the spread of homeownership and the fall in inflation (which has reduced the rate at which households' real debt burden is eroded over time). However, the model is unable to account for the full extent of the recent increase in secured borrowing growth. The model also suggests that, because only a relatively small fraction of the housing stock changes hands each year, the aggregate level of debt responds relatively slowly to changes in house prices. So the recent increases in house prices could lead to continuing increases in the debt to income ratio over the next five to ten years. |
| Spring 2003 | The
measurement of house prices
(81k) (by Gregory Thwaites and Rob Wood of the Bank's Structural Economic Analysis Division). House prices are an important consideration in assessing macroeconomic developments in the United Kingdom. But the special characteristics of housing-heterogeneity, infrequent sale and negotiated prices-give rise to important issues that complicate their measurement. There are several valid concepts of house prices-such as the average transaction price, the price of a typical house and the housing stock deflator-each of which is useful for a different purpose. Users must therefore be careful to match the measure they use with the concept of house prices they are interested in. Furthermore, all the available measures are volatile, so high-frequency changes in house price inflation should not be expected to persist. |
| Winter 2002 | Financial
pressures in the UK household sector: evidence from the British
Household Panel Survey
(85k) (by Pru Cox, John Whitley and Peter Brierley of the Bank's Domestic Finance Division). Household indebtedness has risen rapidly in relation to incomes in recent years. But aggregate data cannot indicate which types of households-by age, income or wealth-have accumulated the most debts. This article uses information from the latest British Household Panel Survey (for the year 2000) to provide some evidence on that issue. The survey suggests that debt-to-income ratios vary widely across households. The youngest and lowest - income households increased their debt-to-income ratios by most-and from the highest levels - between 1995 and 2000. But the households with the highest absolute levels of debts tended also to have the highest incomes and net wealth in both years. A large proportion of this wealth was held in housing assets. Such households did not, however, hold substantially more liquid assets than less indebted households. Although households were relatively sanguine about their higher levels of debt, that confidence could be eroded if circumstances deteriorated. Overall, changes in the distribution of household debt in recent years suggest that the household sector may be somewhat more vulnerable to an adverse shock than the aggregate measures indicate. |
| Autumn 2002 | Ageing
and the UK economy
(66k) (by Garry Young of the Bank's Domestic Finance Division). This article argues that overall living standards in the United Kingdom are set to double over the next 50 years alongside a sharp increase in the proportion of people over retirement age. While there are clear risks to this outlook, these would be present even without demographic change. Nevertheless an ageing population does appear to increase the risks to the financial welfare of individuals, especially in their old age. If people living longer do not save more when they are working, then either they have to consume less in their old age or work for longer than would have been the case had greater provision been made for retirement. This risk is heightened by general uncertainty about asset returns which becomes more important as the number of people reliant on private pensions increases. Money and credit in an inflation-targeting regime
(85k)(by Andrew Hauser and Andrew Brigden of the Bank's Monetary Assessment and Strategy Division). This article is one of a series on the UK monetary policy process. It discusses how the assessment of money and credit data fits into the Bank's quarterly forecast round. Monetary statistics are available more rapidly than most other economic data and provide early information on the near-term economic outlook. The analysis on money and credit might be used to adjust some output of the Bank's macroeconometric model. It could also help the MPC to assess the risks around its central projections, reflected in the inflation and GDP fan charts. |
| Summer 2002 | Durables
and the recent strength of household spending
(69k) (by Robert Hamilton of the Bank's Structural Economic Analysis Division and Beverley Morris of the Bank's Inflation Report and Bulletin Division). Household consumption in the United Kingdom grew by about 4% during 2001. This was largely accounted for by unusually strong spending on durable goods—growth in spending on other goods and services slowed to around a six-year low. This article discusses why spending on durable goods needs to be analysed differently from that on other types of goods, and provides some possible explanations for its recent unusual strength. In addition, an alternative estimate of consumption is presented that replaces the expenditure on durable goods with the flow of services derived from them. Over the past year, this alternative measure has grown less strongly than the standard consumer spending series. |
| Winter 2001 | Why
house prices matter But there are other reasons why house prices and consumption may move together. First, if consumers are optimistic about economic prospects, they are likely to increase their consumption of housing and non-housing goods alike. Second, if house price increases are accompanied by an increase in housing transactions, as they often are, these transactions may have a direct effect on consumption as people buy furniture, carpets and major appliances for their new home. Third, house prices may have a direct impact on consumption via credit market effects. Houses represent collateral for homeowners, and borrowing on a secured basis against housing collateral is generally cheaper than borrowing on an unsecured basis (via a personal loan or credit card). So an increase in house prices makes more collateral available to homeowners, which in turn may encourage them to borrow more, in the form of mortgage equity withdrawal (MEW), to finance desired levels of consumption and housing investment. The increase in house prices may be caused by a variety of shocks, including an unanticipated reduction in interest rates, which will lower the rate at which future housing services are discounted. This article describes in detail how this credit market channel may form part of the monetary transmission mechanism. It also considers the implications for monetary policy of recent structural changes in the United Kingdom's retail financial markets. Increased competition has widened the availability of retail credit and reduced its price. In the mortgage market, there is now a wider range of products, and it has become easier for consumers to withdraw housing equity to finance consumption. Other consumer credit products are also more widely available, so that credit constraints in the United Kingdom may be lower now regardless of the level of house prices. |
| Spring 2001 | Saving,
wealth and consumption This article discusses the various forms of household saving and their determinants, and discusses the interactions between saving, wealth and consumption. The first section of this article shows that the fall in the saving ratio has been associated with rising borrowing, including mortgage equity withdrawal, which tends to be related to increases in housing wealth. The second section looks at capital gains and losses, and how these can be considered as part of wider income and hence affect the level of saving. The third section discusses how the sources and composition of wealth gains may affect the response of consumption and saving. Mortgage equity withdrawal
and consumption The first section outlines how the Bank calculates aggregate mortgage equity withdrawal, and explains the relationship between this aggregate measure and other macroeconomic variables. The second section outlines the results of a microeconomic study of the various ways in which households can withdraw equity. The third section reports the results of a recent MORI survey, which investigates how equity is withdrawn, what it is spent on and why this method of finance was used. |
