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Cost of living

Low-income mortgage holders must not be ignored amid interest rate rises

JRF’s latest cost of living tracker shows that almost half of low-income mortgage holders were behind on their bills before June’s interest rate rise – they must not be ignored as the Government and Bank of England look to reduce UK inflation levels.

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The last two years of the cost of living crisis have seen inflation soar to levels not seen for decades, with the price of essentials like food and energy being the main contributors, and the Bank of England has now raised the bank rate by 50 basis points to the highest rate since 2008 in an attempt to reduce inflation.

The impact of soaring prices and rising interest rates mean that incomes need to stretch further to cover additional costs, but incomes, whether they are from earnings or benefits haven’t kept pace with inflation over the past two years. And for low-income households, millions simply do not have the financial resilience in the form of savings to weather those rising costs.

Our latest findings

Our latest tracker report, looking at the impact of the cost of living crisis for those on low-incomes (in the bottom 40% of household incomes, net, before housing costs) was carried out from 3 to 18 May 2023 by Savanta.

Through our research, we find that low-income mortgage holders have not been immune to the financial impacts of the cost-of-living crisis. Official government data (Family Resources Survey 2021/22) tells us that across the UK, there are around 18 million homeowning households, but that only 8 million of these own with a mortgage. Just over 1.7 million low income households live in a home with a mortgage, which is the group we are most interested in. We find a worrying picture for low-income mortgage holders going without essentials:

  • 57% (almost one million households) reported experiencing food insecurity in the last 30 days – which means going hungry or skipping or cutting down meals because you don’t have enough money for food.
  • 73% (around 1.3 million households) reported going without essentials like showers or heating in the last six months or experiencing food insecurity in the last 30 days.

It’s clear that owning your home does not make you immune to rising costs, and that’s partly because so many low-income mortgage holders are already paying so much on their mortgage repayments. Our tracker finds that over four in ten (42%) of all low-income mortgage holders were paying more than 40% of their income on mortgage repayments in May 2023. While that is less than that of low-income private renters, where 55% are paying more than 40% of their incomes on rent, it is still significant, when that is 40% of a low income.

And so it is not surprising that low-income mortgage holders are not just going without essentials, but also falling behind on their bills. We find that almost half (45%) are in arrears with at least one household bill, and of those in arrears, 54% are in arrears with three or more bills. It’s clear that low-income mortgage holders are trying desperately to prioritise their mortgage repayments, as only 16% report being behind on their mortgage repayments, but that is at a cost of falling behind on many other bills, and going without multiple essentials.

Of particular concern now is the impact of higher interest rates for those whose fixed rates are ending soon. 31% of low-income mortgage holders (over 500,000 households) reported that their fixed-rate mortgage will come to an end between now and the end of the year – but 48% of this group are already paying more than 40% of their income on their mortgage.

Government must support where it's needed most

To make sure support is effectively targeted to those who need it the most, the Government should be looking at making sure that Support for Mortgage Interest (SMI) works better for those who need it, by reviewing the caps and the interest rates it covers, and reverting it from an interest bearing loan to a grant, or at a minimum, an interest free-loan. Low-income mortgage holders who are struggling to make ends meet shouldn’t need the additional burden of paying interest on the loan that may help them stay in their home.

Mortgage holders can't be ignored

Overall, these are deeply concerning findings: low-income households, both renters and mortgage holders, are facing significant housing costs that are eating up more and more of their incomes. And while private renters are certainly faring the worst (because their housing costs are higher, they tend to be younger and hold lower levels of savings), low-income mortgage holders also can’t be ignored as the Government and the Bank of England look to reduce inflation levels for the UK.

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