Mortgage costs stabilise after surge in interest rates, says Barclays

HOUSING costs are stabilising after years of surging payments, according to Barclays data, adding to evidence that the economy is turning a corner.

The amount people spent on mortgage repayments and rents rose by 1.8pc in March compared with a year ago, according to analysis of millions of current accounts.

This is far lower than the rise of 12.2pc recorded in June 2023, when growth was at its highest. It is the lowest annual increase since March 2023. Soaring inflation and higher interest rates have pushed up average monthly mortgage costs by hundreds of pounds, while rents have surged as landlords pass on higher borrowing costs.

Sales of buy-to-let properties have also reduced supply after some landlords stopped renting their properties after years of higher taxes and increased regulation in the sector.

It came as separate figures published by the British Retail Consortium showed that retail sales improved in March, as the early Easter led to households ramping up spending.

Total UK retail sales were up by 3.5pc compared with last March.

This is above the three-month average of 2.1pc and the first time in more than two years that sales growth has outpaced inflation. This means British households are no longer spending more to get less, according to the BRCKPMG retail sales monitor.

The figures showed food sales rose 6.8pc year-on-year because of the early Easter and the subsequent uplift ahead of the long bank holiday weekend. Elsewhere, wet weather dampened sales of garden furniture, barbecues, DIY products, and clothing and footwear.

Economists believe the Bank of England will start cutting interest rates from a 16-year high of 5.25pc this summer, which should also help to boost consumer confidence.

While Barclays said there were reasons to be optimistic about consumer spending, it added that almost half reported they are continuing to rein in discretionary spending, with 53pc of this group cutting back on clothing and accessories. Many people also said they were eating out less.

Barclays’ data chimes with evidence cited by the Bank of England that services inflation – a key factor behind its policymakers keeping interest rates on hold – is finally starting to cool.

Karen Johnson, head of retail at Barclays, said: “Retailers were braced for a more subdued start to 2024, and recent figures are in line with expectations.

“However, in spite of this initial lull, many retailers are confident that spending will rebound, particularly in anticipation of better weather, the energy price cap drop, an uplift in the minimum wage, and the buzz around major events such as Taylor Swift’s Eras Tour and the Paris 2024 Olympics.”

Linda Ellett, at KPMG, added: “An early Easter showed green shoots of spring for retailers in March, with sales growth up and above headline inflation for the first time in more than two years.

“There were also more categories starting to see positive sales growth in March for the first time in months.”