A report by the Institute for Fiscal Studies (IFS) found ex Tory PM Liz Truss’s disastrous mini-budget helped make the impact of soaring mortgage rates even worse
Soaring mortgage rates have driven an extra 320,000 people into poverty, a top body claims.
The Institute for Fiscal Studies says many households taking out a new home loan or having to remortgage over the past two years have suffered “sharp falls” in their disposable incomes as a result. The Bank of England’s interest rate has been hiked to a 16-year high of 5.25% to tackle rocketing inflation.
And failed Tory Prime Minister Liz Truss ’s disastrous mini-budget in late 2022 made matters even worse, by driving mortgage costs even higher. The impact has been felt by first time buyers through to borrowers coming off cheap mortgage deals and being landed with a massive bill shock when they have to sign up for a new deal.
Today’s IFS study, funded by the Joseph Rowntree Foundation, examined recent trends in poverty and deprivation. While the financial hit of higher mortgage repayments is widely known, the research claims the true scale of the impact has been underestimated in official poverty statistics.
It believes that increases in interest rates between December 2021 and December last year are likely to have pushed poverty rates among those with a mortgage up by the equivalent of 320,000 more people. Sam Ray-Chaudhuri, a research economist at IFS and an author of the report, 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 understating the number of people in poverty, something set to get worse in next year’s data.”
The study used as its measure absolute poverty - or those people living in households with incomes below 60% of the UK median average for 2010, then adjusted for inflation. Despite the Covid pandemic and the cost-of-living crisis, it says the overall rate of poverty was the same in the year to April last year as in 2019/20, at 18% of the population - or 12 million people.
However, the figure rose by 520,000 between 2021/22 and 2022/23, it said. There has been a significant increase in what the report calls more direct measures of hardship. For example, the proportion of working-age adults who reported being unable to keep their home warm enough rose from 4% to 11% (1.8 million to 4.6 million) between 2019/20 and 2022/23.
Peter Matejic, chief analyst at the Joseph Rowntree Foundation, 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.”
He added: “This 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 the financial resilience and security they needed to cope with higher prices and costs.”
TUC General Secretary Paul Nowak said: "This surge in poverty shows the awful impact on people’s lives of the Conservatives’ economic and policy failures.
"It’s a poverty crisis that has been created by poor growth and social security cuts. Interest rate hikes came on top of the longest period of pay stagnation for more than 200 years. Rapid delivery of the government’s plan to make work pay will ensure more better-paid, secure jobs and help reduce poverty among working families.”
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