Mortgage rate rises pushed 320,000 more people into poverty, report finds

Mortgage rate rises pushed an estimated 320,000 more people into poverty by the end of December 2023, according to the Institute for Fiscal Studies (IFS).

In 2022/23, the average mortgage rate was around 2.3%, translating to interest payments of £240 per month for a household with a typical outstanding mortgage, a report from the IFS said.

“But a 10th of households faced a mortgage interest rate of at least 4.7%, equivalent to £490 per month,” it continued.

The report said that official poverty measures apply a single average interest rate to all households.

Absolute poverty among mortgage holders, officially 7.9% in 2022/23, is underestimated by around 70,000 people, according to the report.

It added: “Increases in interest rates between December 2021 and December 2023 are likely to have pushed mortgagor poverty rates up by … 320,000 more people, when measured accounting for variation in mortgage interest rates.

“But official poverty statistics, which apply a single average interest rate to all households, will only capture … 230,000 of this.”

The IFS also pointed to evidence that mortgage rate rises have pushed some adults into financial hardship.

Borrowers remortgaging in 2022 were more likely to fall into arrears on bills than those with mortgages who had not remortgaged, the IFS said.

The analysis suggests that, once all households have remortgaged, the number of adults behind on bills could rise by 370,000, according to the report, funded by the Joseph Rowntree Foundation (JRF).

Sam Ray-Chaudhuri, a research economist at IFS and an author of the report, said poverty rises had been understated due to the unequal impact of inflation.

He said: “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.”

Treasury Chief Secretary Darren Jones MP said: “People are still paying the price of the Tories’ disastrous mini-budget that sent mortgages and rents spiralling.

“Reckless Conservative choices hit family and public finances alike, leaving the worst economic inheritance since the Second World War.

“This new Labour government will take the difficult decisions to fix the foundations of our economy so we can rebuild Britain and make every part of the country better off.”

Cllr Pete Marland, chairman of the Local Government Association’s (LGA) economy and resources board, said: “High housing costs are closely associated with poverty and councils want to continue to support residents who are struggling with the cost of living as much as possible.

“The household support fund provides a vital safety net for vulnerable households struggling to buy food, heat their home and afford essentials. With the fund due to expire at the end of September, an extension is crucial to continue support for residents through winter.

“Longer term, councils want to shift away from short-term crisis support so they can instead invest in preventative services which improve people’s financial resilience and life chances, underpinned by a sufficiently resourced national welfare system.”

A Government spokesperson said: “We know that high mortgage rates are having a real impact on families. That’s why we have set out the need for economic stability and we have begun fixing the foundations so we can grow our economy and keep taxes, inflation and mortgages as low as possible.”