Mortgage payers face squeeze in 2023 after UK interest rate rises

Wealthy people who own home outright will avoid higher costs and benefit from better return on savings

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

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 the Britain’s income squeeze”.

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

Older, more affluent households will makes gains, the thinktank said, 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 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 very 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 take the lead in dampening consumer spending and reduce inflation.

The central bank has increased interest rates nine times in little more than a year from 0.1% to 3.5%, increasing the cost of borrowing to businesses and households and forcing them to spend less.

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

Many private renters are also likely to be badly affected by rising interest rates, which are passed on by landlords in the form of higher rents. Rent rises paid to social landlords are capped at 7%.


Phillip Inman

The GuardianTramp

Related Content

Article image
Bank of England interest rate rise – what it means for borrowers and savers
Rate rise to 3.5% affects everything from mortgages to credit cards, loans and savings. Here is all you need to know

Rupert Jones

15, Dec, 2022 @1:27 PM

Article image
How will the UK interest rate hike affect you?
From loans to mortgages, house prices to credit cards – all you need to know about the biggest rate rise since 1989

Rupert Jones

03, Nov, 2022 @1:49 PM

Article image
What does the Bank of England interest rate rise mean for you?
From mortgages to credit cards, we break down the impact the 4% rise could have on your finances

Zoe Wood

02, Feb, 2023 @2:01 PM

Article image
Interest rates will need to rise again, warns Bank of England rate-setter
Catherine Mann, a hawkish member of the MPC, says high rates necessary to stop inflation becoming embedded in wages and prices

Phillip Inman and Graeme Wearden

23, Feb, 2023 @1:53 PM

Article image
UK mortgage rate rises ‘will put extra 400,000 people in poverty’
Analysis from Joseph Rowntree Foundation also finds rents for new lets could rise sharply

Zoe Wood

04, Nov, 2022 @3:16 PM

Article image
Global woes will delay UK interest rate rise until 2020, say analysts
Weak global economy and sharp slowdown in UK growth will prevent any rise from 0.5% for at least four years, says EIU

Phillip Inman Economics correspondent

09, Feb, 2016 @1:12 PM

Article image
What would a 0% base interest rate mean to you?
The IMF has suggested the Bank of England drop the base rate to 0% to stimulate the UK economy. Here's what it would mean to homeowners, savers and borrowers

Hilary Osborne

23, May, 2012 @2:27 PM

Article image
What does interest rate cut mean for mortgages and savers?
There will be gain for some consumers but pain for others after the Bank of England’s decision

Patrick Collinson

11, Mar, 2020 @10:52 AM

Article image
UK interest rate rises 'to be delayed'

Bank of England will hold off raising interest rates until recovery is established and consumers are spending, two economists predict

Phillip Inman

17, Jun, 2011 @4:50 PM

Article image
UK inflation: what it means for house prices, savings and pay rises
We answer readers’ questions about how the rise in cost of living will affect them

Hilary Osborne and Larry Elliott

23, May, 2022 @6:00 AM