Available cash to spend falls as rising cost of mortgages hits home

THE amount of money available to be spent by the typical Scottish household has plunged by more than one-quarter in just six months.

Average levels of disposable wealth north of the Border fell to 21,983 last month, from 29,724 in March.

Experts say the dramatic decrease is due to larger mortgages and falls in the stock market.

Disposable wealth is defined as savings and stocks and shares, as well as the element of a house's value that could be turned into cash, such as through equity release.

According to research by the consumer data analyst KDB, the average level of disposable income dipped slightly to just under 40,000 UK-wide, although it increased in London to more than 87,000.

A spokesman for KDB said: "It is clear that the average Scottish household's disposable wealth has declined very substantially in the past six months, with mounting consumer and household debts against stagnating house prices being one of the chief causes of the problem."

The analyst firm, which has been tracking changes in disposable wealth every six months for the past two years, said it would be concerned if the drop was repeated in future surveys.

KDB blamed the downturn on homeowners taking on larger mortgages that had outstripped the growth in house prices.

In addition, the value of shares had fallen because of a poorer stock market earlier this year, while interest rates for savers have also been cut.

KDB also pointed out that personal debt in Britain had exceeded 1.25 trillion for the first time last month.

And the Bank of England has reported that UK homeowners withdrew 12.51 billion from the value of their properties in the first three months of the year, continuing an upward trend which started last year.

The latest disposable wealth figure for Scotland is still up on KDB's initial survey in September 2004, when it stood at 20,517 - but this is the first dip since then.

The KDB spokesman said: "This drop in disposable wealth in Scotland would not be worrying if the country had a proportionately lower level of borrowing than the country as a whole. Sadly, this is not the case - quite the reverse in fact."

Matt Boot, the chief analyst at KDB, added: "Consumer spending growth levels and disposable wealth growth levels should not be confused. This latest analysis shows that disposable wealth has declined over the past six months in most parts of the UK, contrasting with consistent growth over the previous 18 months.

"This is economically important, given the increases we have seen in consumer spending and consumer debt levels in 2006. The two need to be roughly in parallel to give government economists the confidence that the nation is not spending more than it can afford.

"We need more evidence across a further half-year to see whether the current data marks a temporary setback or a longer term trend. However, were a major disparity to appear between debt and disposable asset values, then this would become economically worrying for the country."

• Credit cards should carry cigarette pack-style warnings about their high repayment costs, a former banking chief said last night. Jim Spowart, who set up the Edinburgh-based internet bank Intelligent Finance, has argued all cards which have interest rates higher than 10 per cent above the Bank of England's base lending rate should come with advice labels.

He said: "What we need is legislation in the UK which would insist that lenders highlight the fact that they are charging 200 per cent above the Bank of England's base rate. The cost of these excessive interest rates is certainly contributing to the customers' inability to pay bills."

'There is less money in people's pockets'

HAIR and beauty salon owner Adrian Foxworthy knows first-hand that disposable wealth is shrinking - his customers are visiting less often.

Mr Foxworthy, 37, the owner of two franchises for Rainbow Room International in Glasgow and East Kilbride, said he was having to work harder to compensate.

The businessman runs the salons with his wife Laura, 32, who live with their sons Joseph, five, and Patrick, two, on the South Side of Glasgow.

He said: "Things are getting tighter and there is less money in people's pockets. Our customers are spreading their visits and we are seeing them come to the salons less often."

Mr Foxworthy said his family's income had increased to more than 200,000 per year, but it was being affected by rising interest rates and "hefty" council tax bills.

He employs a total of 35 people at his salons - he has run the original in Clarkston for nine years, and took over the East Kilbride business three months ago.

He said the expanding empire had increased his working week from 45 to more than 60 hours a week.

Mr Foxworthy said he was also spending more on staff training than ever to ensure high customer service levels were maintained.

In addition, he said he remained wary about the future.

Mr Foxworthy added: "We need to keep savings in the bank because you do not know what is going to happen."