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, and by
December 2023 this is set to have pushed 320,000 such people into
poverty. But official data do not measure mortgage interest
payments properly, so official poverty statistics will only
capture about two-thirds of this effect (230,000 people).
These are the findings of a new IFS report, released today and
funded by the Joseph Rowntree Foundation, which examines recent
trends in poverty and deprivation. Other key findings include:
-
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 12.0 million people), though it did
rise slightly by 0.8 percentage points (520,000) between
2021–22 and 2022–23. But there was a significant
increase in more direct measures of hardship. For
example, 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).
-
Part of the difference is likely to relate to how the
official statistics measure incomes and hence poverty.
Higher energy and food prices mean that lower-income households
and pensioners faced a higher inflation rate than average – but
this is not captured by the official poverty statistics.
Taking account of higher inflation for these households
implies 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.
- In addition, the official statistics do not measure
households' mortgage interest payments directly, instead
modelling them based on average interest rates. This matters when
there is a growing spread of interest rates as some households
come off their fixed rate: in 2022–23, mismeasurement of
mortgage interest payments resulted in the number in poverty
being understated by 70,000; as more fixed-term mortgages end,
that number is set to rise to 150,000 (based on December
2023 interest rates).
-
There is evidence that mortgage rate rises have pushed
some adults into financial hardship. Adults
remortgaging in 2022 were 2 percentage points more likely to
fall into arrears on bills than those with mortgages who had
not remortgaged. This suggests that, once all households have
remortgaged, the number of adults behind on bills could rise by
320,000.
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.'
