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UK: Families enjoy rising incomes and a respite from inflation hikes

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British families are enjoying record incomes and falling expenditure, putting them on a firmer financial footing than at any time during the last three and a half years, Aviva’s latest Family Finances Report reveals today.

More families are starting to splash out on luxury items such as holidays, leisure goods and satellite television subscriptions, while growing numbers are putting away money for a rainy day. However, this rise in income and fall in expenditure disguises a growing wealth gap, while fears about rising inflation are being replaced with worries about interest rate increases.

Single income families are most exposed financially

Aviva’s report tracks the financial circumstances of different UK family types and shows that although more families are saving, many have fairly thin financial cushions. A third (31%) of all families have less than £500 in savings, but among single parents, and those who are divorced, widowed or separated, that figure rises to 64pc and 46pc respectively.

These types of family also have the smallest monthly incomes. Families who are divorced, separated or bereaved with children take home just £1,315 a month, compared with an average of £2,185 across all family types. Single parents – despite a 10% uplift in income since January 2011 – still bring in just £999 a month, less than half the average monthly take-home income.

Housing north / south divide is evident in family homes

Aviva’s data shows that the average family home is worth £230,030, the largest figure ever recorded by the Family Finances Report series and a substantial increase of £7,213 or 3% since December 2013.

There are clear regional splits within this data however. Families in Yorkshire and the North East and West have seen their homes fall in value by up to 7% since December 2013. The average family house price in Yorkshire is now £197,004, down from over £201,000, while in the North West it is £170,719 down from more than £183,000. Meanwhile the average London family home has increased in value from £359,331 to £372,931, an increase of nearly 4%.

Household debts continue to fall

Household debt is now lower than it has been at any point since November 2011. This debt has frequently exceeded £10,000 over the last three years, and was as high as £12,834 in May 2013. It is now at less than half that maximum level, at £6,354, down £342 in the last six months alone.

While many families in the UK have reduced their overall debts, increasing numbers have taken out a bank overdraft. The percentage of families using a bank overdraft has increased from 20% to 27% over the last six months, although the average overdraft amount has decreased sharply in the same amount of time. Across all UK families, the average bank overdraft is now £318, down from £642 six months ago.

Rising interest rates cause concern

The last six months has also seen a reduction in the number of families who are worried about the rising cost of living. As inflation has fallen during this period, 5% fewer families cited this as a worry, although 2% more are worried about the spectre of rising interest rates instead. Families are also worried about the loss of income from their investments, and the possibility of serious illness for family members.

Louise Colley, protection director for Aviva, said: “Britain’s families seem to be recovering well from the financial crisis, saving more and even feeling confident enough to spend a little on luxuries. However, fears about the future, including rising interest rates, as well as increased use of bank overdrafts, indicate that for many people finances are still finely balanced.

“These latest figures show how quickly financial situations can change so we’d urge people to take steps to protect themselves against unexpected financial shocks. While some families do appear to be on a firmer footing, an unexpectedly lost income can have huge repercussions, so it’s important that people make sure they protect their loved ones’ futures.”