Consumers taking steps to meet higher mortgage costs

28th September 2023

Mortgage holders are taking new steps to manage their finances to cope with higher monthly payments and adapting their spending due to inflation, new KPMG research has found.

Faced with either the immediate reality or prospect of higher mortgage rates, 1096 mortgage holders were asked whether they have either already taken, or are considering taking, the following actions:

  • Used savings to reduce outstanding mortgage balance: 18% have, 25% considering.
  • Switched to an interest-only mortgage: 16% have, 24% considering.
  • Lengthened mortgage term: 12% have, 25% considering.
  • Sold and moved to a cheaper home: 8% have, 22% considering.

In addition, 11% said they have reduced pension contributions, with 20% considering doing so.

Linda Ellett, UK Head of Consumer Markets, Retail and Leisure for KPMG, said “Whether it’s switching to interest-only mortgages, lengthening mortgage terms, reducing pension contributions, or selling property to move to something cheaper – this higher interest rate environment is causing between 10 to 20 percent of mortgage holders that KPMG surveyed to take significant steps to manage these higher costs.  And up to a further quarter of people surveyed are also considering taking such measures, likely only waiting for when their fixed-term deal ends.”

“Inevitably, increased household budget and savings being used to pay the mortgage, or higher rent cost, will continue to lead to less money being spent elsewhere within the economy by consumers, which will continue to challenge both retailers, brands and leisure businesses.”

With various household essential costs remaining elevated, over half (56%) of the consumers surveyed said that they have had to reduce their non-essential spending since 2023 began.  Only 4% said they have been able to increase non-essential spending this year.

Eating Out (70%), Takeaways (60%) and Clothing (60%) are the top three things that people reducing their non-essential spend have cut back on so far in 2023.

Consumers are also continuing to change their buying behaviour to make further savings, with even more having to squeeze out value since this time last year:

  • 41% say they are buying more own brand / value products (30% September 2022).
  • 39% say they are buying more promotional or discount items (32% September 2022).
  • 36% say they are spending more time looking for bargains (27% September 2022).

A third of consumers (29%) said that they have switched to shopping at less expensive retailers, while one in five said they are buying more pre-owned items this year.

Ellett added “As 2023 has progressed we have seen the number of shoppers having to make cost savings increasing.  Around 40 percent of the consumers we survey say they are buying lower-cost or promotional goods, with a third having switched to lower-cost retailers.  One in five say they are buying more pre-owned goods this year, which more positively could also reflect environmental drivers.”

“We are also seeing consistent numbers of consumers cutting back on certain non-essential activities in order to save money – with eating out and takeaways continuing to be the most common target for cost-cutting.”

Just over a quarter (27%) of those polled are presently using their savings to help meet their household essential costs.  70% are not currently having to use savings for this purpose.

The most common ‘big ticket purchase’ that savings have been used on in 2023 is holidaying – for 38% of people with savings.

The average amount of savings of those polled is just under £8000.  However, 18–24-year-olds reported having £2,747 in saving on average. While those aged 65 and over reported having £12,543.

A fifth (21%) of the 3015 consumers polled said that they feel more financially secure now than they did at the start of 2023.  But over a third (34%) feel less secure.  While the remainder feel no more or less secure than when the year began.