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Rising borrowing costs mean UK households with mortgages were hit by higher inflation than any other household group in September, according to official data that lays bare the uneven impact of the cost of living crisis.
Household cost inflation for those with mortgages was 9.3 per cent in the year to September, said the Office for National Statistics on Monday. That was the highest of any socio-economic group, and compares with a headline cost inflation rate of 8.2 per cent and consumer price inflation of 6.7 per cent in the same period.
The rate of price growth for households with children meanwhile was 8.4 per cent in the same period. For households without children, it was 8.1 per cent.
Monday’s data marks the first quarterly publication of the ONS household cost index, which is based on the different composition of expenditures among household types. The headline inflation rate, by contrast, reflects the price growth of goods and services consumed by all UK households.
As a result, food and energy price growth, for example, have a greater impact on the experienced inflation of poorer households because they spend a bigger share of their income on essentials.
The ONS HCI also includes the costs faced by households from changes in mortgage interest rates, stamp duty and other costs related to the purchase of a dwelling, which are not included in the headline inflation rate.
The statistics agency therefore judged that the measure “most closely reflects households’ lived experience”.
In addition to surpassing consumer price inflation in September, household cost inflation peaked at a higher rate of 12.6 per cent in October last year, compared with the 41-year high CPI of 11.1 per cent.
The ONS said the bigger hit to mortgaged households was mainly because of high interest payments, which rose as the Bank of England raised the cost of borrowing to a 15-year high of 5.25 per cent over the past two years.
However, the agency said mortgagors also spent more than other groups on restaurants and hotels, where prices have increased quickly in recent months.
By contrast, renters spent more on electricity and other fuels. Annual price growth in that category has plunged on the back of a normalisation after the energy shock sparked by Russia’s full-scale invasion of Ukraine.
The difference between those groups is likely to widen in the months ahead as electricity and gas price growth turned negative in October, while more households are forced to remortgage at higher rates.
Paul Dales, economist at the consultancy Capital Economics, said faster growth in the HCI for mortgagors was “exactly what you would expect and what the BoE would want to see after raising interest rates”.
Higher borrowing costs reduced demand in the economy by squeezing the real incomes of those with debts relative to those without, he added.
The ONS data also showed that the large difference in inflation experienced by poorer and richer households throughout 2022 nearly disappeared in September 2023, reflecting diverging trends in energy and mortgage costs.
In October 2022, annual inflation for low-income households peaked at 13.5 per cent, driven by high spending on energy.
In the same period, high-income households were hit by a rate of 11.5 per cent, 2 percentage points less, the largest gap between the two groups in 13 years.
Dr Sarah Cumbers, chief executive of the Royal Statistical Society, said the professional body had “long been campaigning for the development of the household cost indices as the best way to” represent the impact of inflation.
“We hope the government takes note of today’s figures which show that inflation is higher, and hitting those with a mortgage and social renters the hardest,” she added.
The government was contacted for comment.
