320,000 pushed into poverty by mortgage interest rate rises – IFS

Many households remortgaging or taking out new mortgages since 2022 have experienced sharp falls in their disposable income as higher interest rates have pushed up housing costs, the latest Institute for Fiscal Studies (IFS) report has found

The report, funded by the Joseph Rowntree Foundation, revealed that by December 2023 more than 320,000 people had been pushed into poverty.

However, official data does not measure mortgage interest payments properly, so official poverty statistics will only capture about two-thirds of this effect.

Despite the pandemic and the cost-of-living crisis, the overall rate of absolute poverty was the same in 2022-23 as in 2019-20 (18%) or 12 million people, though it did rise by 0.8% between 2021-22 and 2022-23. 

The proportion of working age adults who reported being unable to keep their home warm enough rose from 4% to 11% (1.8 million to 4.6 million) between 2019-20 and 2022-23, and the share who reported being behind on bills rose from 5% to 6% (2.1 million to 2.5 million). 

Higher energy and food prices mean that lower income households and pensioners faced a higher inflation rate than average – but this was not captured by the official poverty statistics. 

Taking account of higher inflation for these households suggested that poverty rose by 210,000 more people than implied by official statistics for 2021-22 and 2022-23 (730,000 people rather than 520,000), including 80,000 pensioners.

There was further evidence that mortgage rate rises pushed some adults into financial hardship. 

Adults remortgaging in 2022 were 2% more likely to fall into arrears on bills than those with mortgages who had not remortgaged.

This suggested that, once all households have remortgaged, the number of adults behind on bills could rise by 370,000.

Sam Ray-Chaudhuri, a research economist at IFS and an author of the report, said: “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.”

Peter Matejic, JRF chief analyst, said: “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.”

Arjan Verbeek, CEO of Perenna, said: “At one point, we need to step back and reassess how our mortgage market works.

“As hundreds of thousands have been pushed into poverty by higher mortgage rates, the time is now.

“There is a profound societal impact of our short-term, volatile mortgage market that is extremely harmful to those with no flex in their monthly budgets. 

“Hard working families deserve to own their homes and have a financially stable roof over their heads.

“Once they achieve this goal, they have a right to keep it and not fall into poverty due to economic factors outside their control.

“Home ownership should be about stability, not gambling, so we need to find ways of protecting consumers from interest rate risk.

“This report is a shocking indictment of our mortgage market, so let’s start thinking outside the box for new solutions.”