Cost of living: Mortgage-holders face 'biggest falls in income'
People with mortgages are set to face the biggest falls in income, an economist has said.
The Resolution Foundation think tank predicts that mortgagors - or homeowners with a mortgage - will see their income drop by 8% on average over the next two years because of rising interest rates.
This equates to an average drop in income of almost £3,000, the think tank said, as the cost of living crisis continues.
The warning comes a day after the Bank of England raised interest rates from 4% to 4.25% following an unexpected jump in inflation - the rate at which the prices of goods changed - which rose from 10.1% in January to 10.4% in February.
Watch: Bank of England raises interest rates again
The bank has been raising interest rates for about 15 months, with Thursday’s decision the 11th time in a row that the rate has increased.
On Friday, Torsten Bell, the chief executive of the Resolution Foundation, said in a blog post headlined: A Living Standards Maelstrom For Mortgagors': "There’s another phase ahead of us, in which rising interest rates are doing a lot of the work of crushing living standards.
"That will mean quite different outlooks for those in different housing tenures. The big news is that mortgagors – the highest income group – are set for the biggest income falls: 8%, or £2,900, on average over this year and next.
"That’s a big turnaround from the living standards windfalls of falling interest rates in the 2010s."
The figures were compiled by the Resolution Foundation using data from the Office for National Statistics (ONS), the Department for Work and Pensions (DWP) and forecasts by the Office for Budget Responsibility (OBR).
In what it called a "surprise", the foundation predicted that renters' income would stay the same or even grow slightly over the same period.
Read more: How much do houses cost in Britain's 'best place to live'?
Bell said: "As we look ahead, the cost of living crisis is getting more complicated in its distribution, even if the big picture remains blindingly obvious: it’s a disaster for Britain."
Earlier this week, the Resolution Foundation has said UK workers are £11,000 worse off per year because of 15 years of wage stagnation.
It calculated that, had wages continued to grow at the pace seen before the 2008 financial crash, the average worker would make £11,000 more per year than they do now, taking rising prices into account.
The think tank also found typical UK household incomes have fallen further behind those in Germany - in 2008, the gap was more than £500 a year, now it is £4,000.
Last week, the OBR, the government's official forecaster, said the UK is on track to avoid a technical recession, or two consecutive quarters of decline.
However, it said people are still expected to face the biggest fall in living standards on record, with real households’ disposable income per person due to tumble 5.7% over 2022/23 and 2023/23.
On Wednesday, the ONS said annual house price growth has slowed but rental prices have increased at their fastest rate since records started in 2016.
Average UK house prices increased by 6.3% in the 12 months to January 2023, down from 9.3% in December 2022.
The average UK house price was £290,000 in January 2023, which was £17,000 higher than 12 months earlier.
But private rental prices paid by tenants in the UK increased by 4.7% in the 12 months to February 2023, according to the ONS.
This represented the largest annual percentage change since comparable UK records started in January 2016.
Watch: Bank of England boss 'more optimistic' of avoiding recession