Homeowners with mortgages will be among the biggest losers from the cost of living crisis in 2023 due to interest rate rises, while the wealthiest UK households will benefit from better returns on savings and investments, according to analysis by a leading thinktank.
The Resolution Foundation said the way the government had tackled the spike in inflation this year – relying heavily on the Bank of England’s interest rate rises – put “mortgage households at the heart of the Britain’s income squeeze”.
In a report that underscores the dramatic rise in costs facing ordinary families, the thinktank said 3m households face a £3,000 a year increase in their mortgage costs by the end of the 2023-24 financial year.
A rise in mortgage rates and the broader impact of inflation on food and transport prices will amount to a 12% decline in real incomes for a typical mortgage household between 2021-22 and 2023-24.
Older, more affluent households will makes gains, the thinktank said, as rising interest rates cause an upswing in savings and investment income next year.
“Much of this unearned income surge will be captured by the richest 5% of households, and is significant enough to cause their incomes to rise by 4% this year and next – even while the rest of the country gets poorer,” the report said.
Emily Fry, an author of the report, said rising mortgage costs would create a second wave of inflation for many households, even as gas petrol prices ease back.
She said: “Britain is set for a £20bn increase in savings income, almost all of which will be captured by the very richest in society.
“Redistributing some of this unearned income surge should be a key consideration for the chancellor ahead of his tax-reforming budget in March.”
Ministers have relied on the Bank of England to take the lead in dampening consumer spending and reduce inflation.
The central bank has increased interest rates nine times in little more than a year from 0.1% to 3.5%, increasing the cost of borrowing to businesses and households and forcing them to spend less.
However, almost a third of households, or 8.1m, own their home outright, according to the latest census, leaving them unaffected by rising mortgage costs. Less than 30%, or 7.4m, own a home with a mortgage.
Many private renters are also likely to be badly affected by rising interest rates, which are passed on by landlords in the form of higher rents. Rent rises paid to social landlords are capped at 7%.
