UK households are grappling with soaring costs, now at their highest level in three decades, according to an analysis conducted by interactive investor.
The average household now spends 47% of an average salary on housing, a marked increase from 28% in 2020. Moreover, as of June 2023, 66% of an average income is dedicated to housing, food, and energy costs, compared to 45% in 2020.
The financial pressures faced today are a stark contrast to costs endured in the 1970s and 1980s.
Housing, food, and energy used up a staggering 83% of an average income in 1970, 98% in 1980, and 92% in 1990. Food costs were particularly burdensome during these decades, consuming 40% of an average income in the 1970s. In comparison, food expenditures make up 12% of an average income in 2023.
Energy costs, which account for over 7% of an average income, are at their highest level since 1985. The analysis also found that the average household now spends £1,323 each month on mortgage repayments, more than twice the amount paid in 2020, due to the mortgage interest rate spike to 6.5% in 2023.
Alice Guy, head of pensions and savings at interactive investor, said: “Household costs are at their highest level in three decades, and it’s hitting the younger generation hard.” She pointed out that the “big three costs” – housing, food, and energy – are now at their highest level since the early 1990s, absorbing 66% of an average income.
She also highlighted the exorbitant housing costs, which are now higher than any time since the early 1990s, and showed no signs of decreasing. This, paired with surging mortgage rates, has led to a significant increase in monthly mortgage payments.
However, Guy pointed out that the cost of starting out in life has always been high, and there was even less disposable income in the 1970s, 1980s, and early 1990s. Despite the high costs, Guy mentioned that there were some benefits to the high inflation of the past. If one stayed in the same property and didn’t move, the housing costs would drop as wages rose with inflation, while the mortgage remained the same.
She also noted that the situation for today’s youngsters is fraught with challenges, from wage stagnation and pension exposure to stock market volatility, to historically high house prices. Guy warned: “For households on an average income, it’s a struggle to afford more than the basics, and unless interest rates and inflation drop significantly, we could all be feeling a lot poorer for some time to come.”
