A run of 14 consecutive interest rate rises has brought worry and financial pain for mortgage holders according to the research by the Office for Budget Responsibility (OBR),
The OBR says that the benefit of better returns on savings has outstripped the hit of higher mortgage rates. Our real household disposable income – put simply, the money we have to spend or save – has risen slightly in 2023. The trouble is, that is bookmarked by a fall in this disposable income in 2022 and another forecast drop in 2024.
The OBR forecasts household debt servicing costs to double from £73 billion to £151billion in 2026 – higher than the 2008/2009 crisis. A typical household to pay £5,350 servicing debts after string of interest rate rises with families forced to fork out an extra £230 a month, compared to the Chancellor £40 a month NICs cut.
After more than a decade of very low rates, they rose consistently from December 2021. That is two years now, yet, what the OBR’s outlook document says its relatively resilient our collective finances have been to those increases this year. Rising interest rates support household incomes (on aggregate) due to the boost to savings income from higher deposit rates so far outweighing the rise in interest payments from higher mortgage rates.
In real life, this effect is not shared equally. M,ny millions of people have less than £100 in savings. A whopping £260 billion sits in bank accounts that do not pay any interest. There is a whole separate debate about rates of tax on savings income. Even if you are not a homeowner, then higher mortgage rates are likely to have an impact – as it has been a major factor behind rapidly rising rents.
The OBR’s figures are an aggregate, creating a risk of drawing oversimplified conclusions, but what it says next is quite clear.
It points to a rise in debt interest payments next year, as more fixed-rate mortgages face renewal. As a result, real household disposable income is set to fall.
Commenting on the figures Liberal Democrat Treasury spokesperson Sarah Olney MP said “This is a horror show for Brits. There is no end in sight to the mortgage nightmare faced by millions. Not only have household finances been clobbered by a barrage of tax rises, but now they face household debts not seen since the financial crisis.”
“This is the true cost of the Conservative government crashing the economy with their botched budget. The Liz Truss hangover continues to cripple the British economy and people’s wallets. The blunt truth is that any tax cut before the election will be more than cancelled out by the mortgage bombshell.”