The cost of household expenditure for homeowners has risen by £9,161 over the past two years, with higher mortgage rates the biggest contributing factor, according to data from interactive investor.
This amounted to an increase of over £763 a month on average, factoring in increases in mortgage, energy and food costs since 2021.
The average rate for a 2-year fixed rate mortgage deal currently stands at approximately 6.75%, marking a 15 year high.
Comparing this rate with the average mortgage rate of 2.29% two years ago in July 2021, interactive investor calculated that mortgage costs alone have gone up £7,975 per year on average over the period, based on the average house price on both dates and 30-year mortgage term.
Myron Jobson (pictured), senior personal finance analyst at interactive investor, said: “Personal finances remain in a state of flux, and the current mortgage storm threatens to devastate budgets that are already crumbling under the pressure of the cost-of-living squeeze.
“Higher mortgage costs have been a huge pain point for those hoping to negotiate their way up the housing ladder and those at or near the end of their fixed rate deal.
“They face paying almost £8,000 a year more on repayments than in 2021, on average.”
According to the research, this increase in mortgage costs has had a disproportionate impact on young adults.
Mortgage costs, based on a 90% loan-to-value (LTV) mortgage deal, have risen to £9,570 compared to 2021.
Added to that the uptick in food (£211) and energy (£640) costs, essential household spending has risen by £10,421 a year over the past two years.
This compared to £9,244 (£7,975 on mortgage, £935 on energy and £334 on food) for the middle-aged cohort.
Pensioners faced a heightened cost burden of £2,828, with the cost of a monthly mortgage repayments jumping by £1,586 over two years (assuming £50,000 mortgage balance) and an £935 and £307 increase in energy and food costs, respectively, over the period.
Jobson continued: “Young adults, who are still very much in the wealth accumulation stage of their life and typically have higher loan-to-value mortgage deals, are particularly feeling the brunt.
“They face spending almost £9,600 a year more on mortgage costs compared with 2021.
“The double whammy of stubbornly high inflation and rising borrowing cost hacks away at wealth from opposite ends, which makes it more difficult for individuals to hit financial milestones – like buying a house.
“The predicted fall in inflation, led by a fall in energy and food costs, will not touch the sides to what is needed to offset the heightened mortgage burden.”
He concluded: “As such, the cost of essential spending is likely going to remain higher than Britons want and need them to be to maintain financial resilience.
“There are still a few more hoops to negotiate in the inflation rollercoaster we find ourselves on.
“Therefore, it remains important to keep a keen eye on your finances and consider how best to fortify your finances for the twists and turns that lie ahead.”
Alice Guy, head of pensions and savings at interactive investor, added: “It’s a stressful time for many pensioners and others on low incomes who spend a bigger proportion of their income on essentials.
“Pensioners have seen their household costs increase by £2,790 in the last two years, a period where the state pension has only increased by £1,261 during the same two-year period.
“Pensioners have limited options to increase their income, and many are having to cut back on essentials to tide them over.
“There’s a myth that all pensioners are wealthy, but in fact millions of pensioners are struggling on a low income and many get most of their income from the state pension.”
She continued: “If you’re over state pension age and struggling on a low income, then it’s important to see if you could be entitled to benefits.
“Pension credit tops up your income to £201 each week for single pensioners and £307 for couples, and it also opens the door to other benefits like a reduction in council tax, housing benefit and cost of living payments.
“Sky-high costs are also making it harder for young and middle-aged households to save enough their pension.
“People often aim to pay more into their pension once their costs become more affordable later in life, but instead soaring mortgage costs are eating up any spare budget.
“The cost-of-living crisis is casting a long shadow, making it harder to save for the future and build enough wealth for a comfortable retirement.”
