Mortgaged homeowners ‘worst-hit’ by higher interest rates

Homeowners with mortgages have seen the highest increase in household costs over recent months, official data suggests.

The latest Household Costs Index from the Office for National Statistics, looks at data such as the inflation rate as well as mortgage pricing.

It found that household costs were up 5% annually between October and December 2023 and 24.7% higher than in December 2019.

Mortgaged homeowners have seen costs rise 6.3% on average, compared with 4.9% for renters and 4% for those who own their home outright, according to the ONS data.

Sarah Coles, head of personal finance, Hargreaves Lansdown, said people who are staggering under the weight of their mortgages have paid the price of multiple interest rate hikes.

She said: “While interest rates have been hiked to keep a lid on inflation and help keep life more affordable, the reality for this group has felt very different. Their household costs have risen far faster than for those who own their own home, and even faster than for renters.

“It means particular groups of people are facing the brunt of higher rates. Newer buyers, who paid more for their homes, are wrestling with bigger mortgages. Those with children, around half of whom have a mortgage (compared to a quarter of those without children), are also in the frame for higher mortgage costs. Their household costs are up 5.5% in a year – compared to an average of 5%. Given just how expensive life is at this stage, it’s going to mean already stretched budgets are pushed to breaking point.

“Higher earners, who are more likely to have a mortgage – and tend to have bigger ones – are also paying a higher price. These people tend to have more savings and more wiggle room in their budgets, so it’s less likely they’re nearing the point of default. However, in many cases they will be eating into their financial resilience to cover bigger monthly bills. It means it’s vital for this group to take stock, to check they still have enough emergency savings and that they’re not damaging their ability to retire on the income they need. It may be difficult to countenance cost-cutting in order to maintain their resilience, but in many cases, there are difficult decisions to be made, even for the highest earners.”

Commenting on the data, Propertymark chief executive Nathan Emerson said there were some positives.

He added: “The rise in household costs has reduced in between September to December 2023. 

But it is clear that inflation is still impacting mortgagors and renters. 

“We hope that inflation starts to fall next month and that the Bank of England can start to cut interest rates in order to ease the burden of costs that homeowners are facing. We would also like to see the UK Government implement measures that can ease the burden of taxation on landlords that is being passed on to renters in the form of higher rents, such as mortgage tax relief for landlords that was scrapped in 2015.”