Soaring interest rates hammer household wealth by £2.1trillion over past year

16 July 2023 , 23:01

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Mortgage costs have been soaring due to a rise in the Bank of England base rate in a bid to curb inflation (Image: PA)

Soaring interest rates have hammered household wealth by £2.1trillion over the past year - the biggest fall since the Second World War, analysts reveal today.

The Resolution Foundation think tank estimates suggest total household wealth has fallen to 650% of national income in early 2023. Its latest study, ‘Peaked Interest?’ warns that if rates remain high, they could drive further falls in wealth to around 550% of GDP.

However, higher levels would bring down house prices - making them more affordable for first-time buyers - and make it easier to “achieve a decent standard of living in retirement by raising rates of return on pension savings”.

Resolution Foundation research associate Ian Mulheirn said: “Over the past four decades wealth has soared across Britain, even when wages and incomes have stagnated. But rapid interest-rate rises have ended this boom and brought about the biggest fall in wealth since the war, of £2.1tn. Those with significant mortgages will be hit by these major changes.

“But there are winners too from a shift to a world of higher rates and lower wealth. Higher returns will make it far easier for younger people to save for a pension that delivers a decent standard of living in retirement, while lower house prices will make it easier for younger generations to get on the property ladder and others looking to trade up.”

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