One in seven families struggle to repay mortgages as pandemic hits household incomes, IFS study finds

Charles Hymas
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One in seven households, including many middle class homeowners, are falling behind on repaying their mortgages because of the pandemic, according to research by the Institute for Fiscal Studies (IFS).

It calculated some 1.4 million homeowners - or 14 per cent of the total - failed to pay their mortgages in May, which added on average around £1,600 to each family's growing household debts

Eleven per cent were struggling to make other rental payments such as for cars or other household goods and nine per cent were not keeping up with their council tax payments.

The IFS said it meant many families were "increasingly struggling to make ends meet” as the Coronavirus crisis persisted. 

And it was not just poorer households but also higher income earners struggling to keep up with their mortgage payments.

"Poorer households seem to be falling behind by more on council tax and utility bills but non-payment of mortgages is spread more evenly across the income distribution," said the IFS study.

It warned that some of these costs were large, placing increased stress on families. The average bill was £1,660 a month for mortgages, £650 for rent, £170 for council tax and £139 for utilities. 

"Increases in accumulated debts of these magnitudes are not sustainable, so this underlines the importance of a quick recovery in household incomes,” said the IFS.

Rising unemployment was a key contributor with the number of jobs down by four per cent, according to the IFS analysis which is based on what the jobs market should have looked like if pre-crisis trends had continued.

Median after-tax household earnings were nine per cent  lower and median household income (including benefits) was eight per cent lower.

This amounted to a monthly income loss equivalent to about £160, largely as a result of abrupt falls in April – but with little or no signs of recovery in May, said the IFS.

The poorest fifth of households, based on pre-crisis income, had been hit harder than other groups in the labour market.  Between January and May, their average (median) monthly earnings fell by around 15 per cent or £160, compared with around four to five per cent for higher income households.

Isaac Delestre, a Research Economist at IFS and an author of the research, said: "Earnings have been hit very hard for those who came into the crisis with the fewest resources. 

“The picture has been much more even so far when we consider total income, rather than just earnings, which highlights the crucial reliance we now have on our benefits system to contain poverty and inequality."

"This still provides plenty to worry about for the lowest-income households in the longer term: not least given the career disruption they are experiencing and the fact that temporary increases to benefits made during the crisis are set to expire next spring. In addition, we see rises in non-payment of bills – especially among poorer households – and this worsened further in May. 

“These represent substantial additional debts being carried forward. All this underlines the crucial importance of securing a labour market recovery that is as swift as possible, compatible with public health requirements."

Mubin Haq, Chief Executive of Standard Life Foundation, funders of the research, said: "The Government’s economic response to the pandemic shows bold action can make a big difference to many of those struggling to make ends meet. 

“As debts build up and a jobs crisis looms, we need to see further swift and decisive action. Our safety net has had some emergency repairs but it still has a number of holes which many are slipping through."