UK households are saving more – but for all the wrong reasons

The UK’s household saving rate is running well above its long‑run average. On the surface, that sounds like good news. Yet behind the headline lies a more sobering story for borrowers, lenders and intermediaries: people are saving more not because they feel comfortable, but because they are more worried than at any time since the aftermath of the financial crisis.

A new report from Oxford Economics, authored by Senior Economic Advisor and former Monetary Policy Committee rate setter Michael Saunders, digs into Bank of England microdata to answer a deceptively simple question: why are household savings higher?

A nation of “thrifty young” – and anxious mortgagors

Savings have climbed across the income and age spectrum, but the surge is most pronounced among younger adults. This is striking given that these same groups face the toughest affordability pressures.

Saunders’ analysis of the Bank’s NMG survey shows higher saving among almost every housing tenure, including mortgagors and private renters. Even those juggling higher mortgage costs or rent increases are pulling back from discretionary spending and building cash buffers.

Only social renters have seen limited movement — unsurprising given tighter financial constraints.

More savings, lower security

The apparent paradox at the heart of the report is that higher savings coexist with greater financial insecurity.

Saunders observes that though “the median level of liquid assets is higher now than the pre‑pandemic period, the share of households who say they don't have enough savings for emergencies has risen markedly.

“Other factors are higher interest rates and a desire to rebuild savings that have been eroded by higher inflation.”

Financial insecurity has risen sharply among:

• Working-age households

• Borrowers and renters

• Those with modest cash reserves

By contrast, older and outright-owning households — supported by the triple lock and improved interest income — feel more secure than they did six years ago.

For brokers, this split will be instantly recognisable. Many older clients are enjoying stronger cashflow, while younger borrowers remain deeply cautious, convinced their financial buffers are too thin even as they save more.

Why the precautionary mindset has taken hold

When households are asked why they are saving more, four themes dominate:

• Worries about future financial shocks

• Saving for specific goals (often a deposit)

• Higher rates on savings

• Rebuilding balances eroded by recent inflation

For renters and mortgagors, fear and uncertainty outrank everything else. For older, mortgage-free households, better deposit rates matter more.

Crucially, Saunders argues this caution isn’t just a reaction to the inflation spike. It reflects the cumulative impact of the last five years — lockdown disruptions, soaring energy bills, and a historic jump in mortgage rates. For younger adults, this turbulent period represents most of their financial adulthood and has redefined what “enough savings” means.

What this means for the mortgage market

The rise in precautionary saving helps to explain several behaviours seen in recent months:

• First-time buyers taking longer to transact as they build larger buffers

• Borrowers resisting high loan-to-income multiples even when products are available

• Growing interest in long-term fixed rates offering predictability

Put simply: this a market shaped by risk-management.

A drag on spending — and a nudge to lower rates

READ MORE: Bank of England set for knife‑edge vote on December rate cut, says Oxford Economics

Saunders expects the savings rate to edge down over the next couple of years as interest rates fall, but asserts that “precautionary saving is likely to keep the saving rate relatively high compared to the pre‑pandemic period. 

This has two main implications:

1. Consumer spending will stay subdued, tempering overall economic growth.

2. The MPC is likely to cut further — and potentially even more than markets currently assume — as a higher natural propensity to save is concomitant with a lower neutral rate.

Saunders stops short of predicting a return to the ultra-low pre-pandemic world, but he does suggest rates will settle at a “new normal” below current levels.

Takeaways for lenders and intermediaries

For lenders and intermediaries, the message is less about imminent change and more about a new, quieter rhythm to the market. Mortgage demand is likely to remain steady rather than exuberant, shaped by households who are far more cautious than they were a decade ago. That caution is already filtering through affordability conversations, with borrowers effectively imposing their own stress tests long before they reach an underwriter.

Even as rates drift lower, the relief will come slowly. Debt-service pressures should ease, but not in a way that transforms behaviour overnight. The headline saving rate may look reassuring, yet it reflects a public bracing for shocks rather than planning for growth.