Mortgage payers face pressure in 2023 after UK interest rates rise | The cost of living crisis in the UK

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Homeowners with mortgages will be among the biggest losers from the cost-of-living crisis in 2023 due to higher interest rates, while wealthier UK households will benefit from better returns on savings and investments, according to an analysis by a leading think tank.

Resolution said the way the government has dealt with rising inflation this year – relying heavily on raising interest rates at the Bank of England – has put “mortgage households at the heart of Britain’s income crisis”.

In a report highlighting the huge rise in costs facing ordinary families, the think tank said 3 million households would face a £3,000 a year increase in mortgage costs by the end of the 2023-24 financial year.

Rising mortgage rates and the broader impact of inflation on food and transportation prices will result in a 12% drop in real income for a typical mortgage household between 2021-22 and 2023-2024.

The think tank said that older and wealthier families would stand to gain, as higher interest rates lead to higher savings and investment income next year.

“Much of this increase in unearned income will be captured by the richest 5% of households, large enough to increase their income by 4% this year and next – even as the rest of the country becomes poorer,” the report states. .

Rising mortgage costs will create a second wave of inflation for many households, said Emily Frey, author of the report, even as gasoline prices fall.

She said: “Britain is ready to increase savings income by £20 billion, almost all of which will go to the richest in society.

“Redistributing some of this increase in unearned income should be a major consideration for the Chancellor before he weighs in on tax reform in March.”

Ministers counted on the Bank of England to take the lead in reining in consumer spending and bringing down inflation.

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The central bank raised interest rates nine times in just over a year, from 0.1% to 3.5%, making it more expensive for businesses and households to borrow and forcing them to spend less.

However, nearly a third of households, or 8.1 million, own their homes outright, according to the latest census, leaving them unaffected by rising mortgage costs. Less than 30%, or 7.4 million, own a home with a mortgage.

Many private tenants are also likely to be hit hard by higher interest rates, which are passed on by landlords in the form of higher rents. Rent increases paid to social landlords are a maximum of 7%.

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