Institute for Fiscal Studies says the true number may be even higher and the problem will get worse
Thursday July 25 2024, 12.01am BST, The Times
Hundreds of thousands of homeowners have been pushed into poverty by the rapid increase in their mortgage bills over the past couple of years.
A report from the Institute for Fiscal Studies, the economic think tank, estimates that the rise in mortgage rates over 2022 and 2023 led to an extra 320,000 people falling into poverty as they rolled on to much more expensive deals.
In December 2021, as the Bank of England started to raise interest rates again, the average rate for a two-year fixed mortgage was 2.34 per cent, according to Moneyfacts, the financial data provider. By December 2023 that figure had jumped above 6 per cent.
For somebody with a £200,000 mortgage, the increase in rates would have pushed up their monthly bill by £412, from £881 at the end of 2021 to £1,293 two years later.
Official statistics show that 230,000 people have been pushed into poverty by the jump in their mortgage bills, but Sam Ray-Chaudhuri, an economist at the IFS, said that this is “understating” the impact because mortgage rates are “not measured properly in the official income data”. Whereas the IFS accounts for variations in mortgage rates, the official data is based on an average rate.
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The IFS expects the problem to get worse. Adults remortgaging in 2022 were two percentage points more likely to fall into arrears on bills than those with mortgages who had not remortgaged. This suggests that once all households have remortgaged, the number of adults behind on bills could rise by 370,000.
The Bank of England also warned recently that those still on cheap mortgage rates face a shock when their deals run out. The Bank said the typical mortgagor refinancing over the next two years will see monthly repayments rise by £180, or 28 per cent, adding more than £2,000 to the average annual mortgage bill.
Despite the pandemic and the cost of living crisis, the IFS found that the level of absolute poverty in the UK, defined as households with incomes 40 per cent below the national average, was the same in 2023 as it was in 2019 at 18 per cent, or 12 million people.
It did, however, see an increase in more direct measures of hardship. The proportion of working-age adults who reported being unable to keep their home warm enough rose from 1.8 million to 4.6 million between 2019 and 2023, while there were 2.5 million people who reported being behind on bills last year, up from 2.1 million before the pandemic.
Peter Matejic, chief analyst at the Joseph Rowntree Foundation, which sponsored the IFS report, said the research “shows the cost of living crisis wasn’t felt equally by everyone”, noting that lower earners and pensioners “faced a rate of inflation even higher than the headline numbers”.Business & MoneyCompanies