Savings Trends

Factors affecting household savings

From the mid 1990s up until 2008 the UK household saving ratio (which measures the proportion of income saved, net of borrowing, as a percentage of total disposable income) was in decline. During this period long term interest rates were falling, unemployment rates were low, asset prices were rising, and markets were awash with cheap credit. All of these conditions provided an incentive for households to spend and borrow rather than save. And in 2008 the savings ratio reached minus 0.8% which means households were net borrowers. The last time this occurred was in the 1950s.

The savings ratio has now begun to rise again as borrowing has fallen and saving has increased, and at the end of Q2 2009 the ratio was back at 5.6%. The economic environment has changed dramatically since 2007, and these changes will partly determine the future of household savings, as investigated recently by the Bank of England

Credit conditions

One of the most immediate and direct effects of the recent financial turbulence has been the much tighter credit conditions imposed by financial institutions on households. The chart (via the link below) shows that availability of credit has reduced consistently from Q2 2007 until Q1 2009. Not only has the supply of credit greatly reduced, but the cost of borrowing has increased as firms re-price risk and repair balance sheets. As a result, households are less able to spend which leads to a rise in the savings ratio.

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BSA at Labour Party Conference 2009

The merit of mutuality was a well discussed topic at this year’s Labour Party Conference.

At an event entitled, Financial meltdown - who can you trust?, Adrian Coles, BSA Director-General, launched the publication of a report from the Centre for Mutual and Employee-owned Business at the University of Oxford on converting failed banks into mutual organisations.

Mr. Coles argued that financial mutuals can provide a robust alternative to financial services companies in the future and what better way to demonstrate this than to seriously consider returning Northern Rock to the mutual sector?

He stressed that given that remutualisation would strengthen competition and create a more diversified financial sector, it could be expected to generate an advantage to the taxpayer over the long run in excess of the immediate benefit of any capital proceeds in the short run.

Speaking at a Unite event, The feeling's mutual - the case for a diverse finance sector, Rob MacGregor, National Officer Finance & Legal, Unite, said:  "Building societies are rooted in their communities. It's vital to support and encourage their development. They offer a very real alternative to the large banks". He went on to call for the remutualisation of Northern Rock and Cheltenham & Gloucester, calling Lloyds Banking Group an 'absent landlord'.

Sarah McCarthy-Fry MP, Exchequer Secretary to the Treasury, said that remutualising Northern Rock has not been ruled out and officials were considering the recent Oxford University report.

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Mortgage Market 2010 Challenge or Opportunity? BSA Seminar

The FSA’s imminent Mortgage Market Review promises the most wide-ranging shake up of the regulatory environment since the introduction of MCOB in 2004. Learn all about how it will impact on your business at the BSA's seminar Mortgage Market 2010 Challenge or Opportunity? on 22 October.

The Review has the potential to dramatically alter the mortgage market, and lenders’ methods of operation. This seminar will provide delegates with an early opportunity to hear directly from the FSA Executive leading the review, who will outline the FSA’s current thoughts and the implications for firms of the Review. Delegates will have ample opportunity to respond and give their views directly to the FSA.

But the seminar won't just focus on regulatory issues. It will be looking at how consumer attitudes have changed as a result of the recession and the key role that trust plays when buying financial services. It will outline what influences customers’ buying decisions, the economic outlook for the mortgage market in 2010 and what lenders need to do to maximise the profitability of their mortgage business.

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What others say

“I am happy to say that reports of the death of the building society sector are greatly exaggerated. Indeed, mutuality may do a better job of aligning stakeholder incentives than some alternative forms of corporate governance.”

From Andrew Haldane, Executive Director Financial Stability, Bank of England, in his speech "Credit is Trust"

The full speech can be viewed here here