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Interest rate increase jeopardizes mortgage payment in 2023

Homeowners with a mortgage will be among the biggest losers from the cost of living crisis in 2023 due to interest rate rises. The wealthiest UK households will benefit from better returns on savings and investments, according to an analysis by a leading think tank.

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 Britain’s income squeeze”.

In a report that underscores the dramatic rise in costs facing ordinary families, the think tank 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.

The think tank said that older, more affluent households would make gains 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 and 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 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 dampen consumer spending and reduce inflation.

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

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