Rising mortgage rates have pushed 320,000 people into poverty, as households that have remortgaged or taken out new mortgages since 2022 face significant losses in disposable income, according to the Institute for Fiscal Studies (IFS).
The recent IFS analysis, sponsored by the Joseph Rowntree Foundation, shows that, while the absolute poverty rate remained stable at 18 per cent from 2022 to 2023, “direct measures of hardship” grew dramatically, with more working-age persons unable to keep their houses warm and falling behind on bills.
According to the analysis, official poverty figures, which do not consider mortgage interest payments or higher inflation rates for lower-income households, understate the number of people affected. Financial struggles will likely increase, affecting about 370,000 more adults with trouble making payments, as more fixed-rate mortgages expire.
IFS research economist Sam Ray-Chaudhuri says: “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. 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 policymakers missing what is truly happening to poverty.”
JRF chief analyst Peter Matejic says: “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.
“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.”
Fair4All Finance director of consumer insights Lauren Peel says: “As well as getting to grips with the extent of poverty, there’s an urgent need for industry and policymakers to be alive to the risks facing the extra 2.7 million people who’ve found themselves facing financially vulnerable circumstances over the last year.
“Financial vulnerability is now a daily reality for 44 per cent of the population, including nearly 4m families in a ‘crisis position’ relying more on credit to afford basic necessities.
“Higher bills, limited purchasing power and postcode exclusion all mean it costs more to be poor in Britain in 2024, to the extent that 10m adults in financially vulnerable circumstances say they cannot afford to eat a healthy and balanced diet.
“Improving financial inclusion can be a key enabler for the Government’s growth plans, and we need to act quickly to reduce the poverty premium that’s costing the UK £2.8bn a year. It’s vitally important that people can access affordable credit and the wider support they need from banks, building societies, credit unions or community providers before more people resort to illegal or high-risk options to stay afloat.”
