- Bank of England elected to hold interest rates at 5.25% in June to curb inflation
A third of a million of homeowners have been pushed into poverty because of soaring interest rates, according to new research.
The Institute for Fiscal Studies (IFS) has said the number is likely to have risen by 320,000 between December 2021 – when the Bank of England started putting rates up – and December 2023.
The average mortgage rate was around 2.3 per cent in 2022, translating to interest payments of £240 per month for a household, a report from the IFS said.
But a tenth of households faced a mortgage interest rate of at least 4.7 per cent, equivalent to £490 per month.
The research group has warned that this could have pushed more adults into financial hardship.
This is more than the 230,000 people projected when applying a single average interest rate.
As many as 320,000 people may have been pushed into poverty by rates in the period December 2021 – when the BoE (pictured) raised rates – and December 2023
The Bank’s governor, Andrew Bailey, said in June policymakers ‘need to be sure that inflation will stay low’ in deciding to keep the level on hold at 5.25 per cent
The surge in poverty comes as borrowers remortgaging in 2022 were more likely to fall behind on payments than those with mortgages who had not remortgaged, the IFS said.
Sam Ray-Chaudhuri, a research economist at IFS and an author of the report, said: ‘Rising mortgage rates have played and are likely to continue to play an important role in many households’ living standards. But, perhaps surprisingly, they are not measured properly in the official income data.’
He added: ‘At a time when rates of deprivation and food insecurity have risen substantially, poverty statistics that hide the real scale of these increases risk policymakers missing what is truly happening to poverty.’
Peter Matejic, JRF chief analyst, said: ‘This report raises many questions about whether social security is adequate for the challenges looming over struggling households.’
But millions of borrowers will be hoping that the Bank of England will cut interest rates when officials meet next Thursday.
The bank rate has been at a 16-year high of 5.25 per cent since last August.
The Bank was one of the first central banks to start raising borrowing costs after the pandemic and is expected to start easing this policy.
The Bank of England kept interest rates at 5.25 per cent, potentially paving the way for an August cut
But separate data last month from the Bank’s latest Financial Stability Report warned that four million mortgage borrowers still face steep increases in repayments over the next few years.
Homeowners reaching the end of their fixed-rate deals are on course to see monthly payments rise by a typical £180 – or 28 per cent, equating to more than £2,000 a year – by the end of 2026.
For some 400,000 people, there is expected to be a ‘very large’ rise of 50 per cent or more, the report said.
The figures illustrate that while rate cuts are expected to deliver relief for many over coming months, a large number of borrowers are still facing painful hits to their finances.
