Some 320,000 people will be “pushed into poverty” due to mortgage interest rate rises, a report from the Institute for Fiscal Studies has revealed.
The report, which was funded by the Joseph Rowntree Foundation, found many households remortgaging or taking out new mortgages since 2022 have experienced sharp falls in their disposable income due to higher interest rates.
It argued that, by December 2023, this would have have pushed 320,000 people into poverty.
However, the report pointed out that official data does not measure mortgage interest payments “properly” and so official poverty statistics will only capture about two-thirds of those affected, or 230,000 people.
IFS research economist and author of the report, Sam Ray-Chaudhuri, said: “Rising mortgage rates have played and are likely to continue to play an important role in many households’ living standards.
“But, perhaps surprisingly, they are not measured properly in the official income data.
“This has led to the headline statistics understanding the number of people in poverty, something set to get worse in next year’s data.”
Understated results
Ray-Chaudhuri additionally pointed out that poverty rises have also been “understated” due to the unequal impact of inflation.
“At a time when rates of deprivation and food insecurity have risen substantially, poverty statistics that hide the real scale of these increases risk policy makers missing what is truly happening to poverty,” he cautioned
IFS’s report also warned that the official statistics do not measure households’ mortgage interest payments directly, instead modelling them based on average interest rates.
It explained that this matters when there is a growing spread of interest rates as some households come off their fixed rate.
In 2022/23, mismeasurement of mortgage interest payments resulted in the number in poverty being understated by 70,000; as more fixed-term mortgages end, that number is set to rise to 150,000.
Additionally, the report found that there is evidence mortgage rate rises have pushed some adults into financial hardship.
It explained that adults remortgaging in 2022 were 2 percentage points more likely to fall into arrears on bills than those with mortgages who had not remortgaged.
This, therefore, suggests that, once all households have remortgaged, the number of adults behind on bills could rise by 370,000.
Rowntree Foundation chief analyst, Peter Matejic, said: “This research shows the cost-of-living crisis wasn’t felt equally by everyone.
“Compared with before the Covid pandemic, many more people, especially those on a lower income, struggled to heat their homes or keep up with their bills.
“One reason lower-income households went without essentials is because they faced a rate of inflation even higher than the headline numbers.
“High interest rates also saw many households forced into financial hardship after they remortgaged.”
Matejic argued the report raises many questions about whether social security is adequate for the challenges looming over struggling households.
“The new government can’t wait for growth, after years of cuts, caps and freezes to social security have left families without financial resilience and security they needed to cope with higher prices and costs,” he concluded.
