More than one million families to run out of savings as mortgage rate soars
Around 1.2million families will run out of savings in the next year because of soaring mortgage repayments. It will mean almost eight million households in the UK will have no savings.
The findings, published by the National Institute of Economic and Social Research (NIESR), outline a “gloomy picture” for the UK as it continues to battle high energy, food and housing costs. Researchers said mortgage holders were suffering, with many facing a 50% rise in monthly repayments. Someone on a variable deal borrowing £300,000 over a 25-year period will have seen their monthly repayments go from £1,200 to £1,800.
Deputy Director at NIESR Professor Adrian Pabst said: “Policy has not cushioned the blow nearly as much as it could, and indeed, should. So in the context of low growth and persistent core inflation, we're seeing widening disparities… up and down the country with little real wage growth for low income households. Those same households have low or no savings. They're certainly running down their savings that they accumulated during Covid in order to pay for higher bills. They're also accumulating more debt and all of this is in order to afford elevated energy, food and housing costs.”
The think tank’s report identified “a steep increase in the growth of credit card debt” since 2021. It said this now makes up almost a third of the £300billion of unsecured debt which excludes mortgages. The report said Brits have also been forced to rely on other forms of lending such as payday loans, which can have an average interest rate of up to 110%, compared to the 20% interest rates on credit cards. NIESR’s analysis found 14% of households earning £15,000 or less carry high-interest loans and are having to spend roughly £3,200 per year on paying back debt. Professor Pabst said it was a “worrying" trend that low income households are having to "resort to debt that carries a higher interest rate than higher income households”.
Professor Stephen Millard, Deputy Director at NIESR, added: "The triple supply shocks of Brexit, Covid and the Russian invasion of Ukraine, together with the monetary tightening that has been necessary to bring inflation down, have badly affected the UK economy. As a result, we expect stuttering growth over the next two years and GDP to only recover to its 2019 Q4 level in 2024 Q3. The need to address the UK's poor growth performance remains the key challenge facing policy-makers as we approach the next election."
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Shadow Financial Secretary James Murray said: “Hard-working families across Britain are seeing their savings wiped out by the Tory mortgage bombshell. The Conservatives’ failure on the economy has left the British people worse off, with higher mortgages and higher food bills. Labour has a plan to help families through this cost-of-living crisis by introducing a proper windfall tax on the huge profits of the oil and gas giants, and by requiring banks to support mortgage holders who are struggling with repayments.”
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