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Mortgaged households face highest inflation due to interest rates – ONS

  • 26/02/2024
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Mortgaged households face highest inflation due to interest rates – ONS
Owner occupiers with a mortgage saw household costs inflate higher than outright owners, private and social renters, government data showed.

Figures from the Office for National Statistics (ONS) indicated that household costs for homeowners with a mortgage had an inflation rate of 6.3 per cent in the year to December 2023. 

The body said this reflected higher mortgage interest payments. 

Meanwhile, outright owner occupiers saw this increase by four per cent, private renters saw a 4.9 per cent rise while social and other renters faced a 4.8 per cent jump. 

In October last year, the inflation rate gap between mortgaged and other owner occupier households compared to outright owner households was 3.1 percentage points. This was the widest gap since November 2009, when the reverse occurred. 

The ONS put this down to mortgage interest payments, which added 3.02 percentage points to the costs faced by mortgaged households. At the same time, outright owners saw their rate fall due to lower energy prices. This fall in energy costs reduced the latter’s inflation rate by 0.63 percentage points more than mortgaged households. 

Higher rents resulted in private renters seeing higher inflation than outright owners, increasing their rate by 1.72 percentage points in October. Compared to private renters, outright owners saw their inflation rate reduce by 0.57 percentage points because of declining energy costs. 

This lower inflation rate for outright owners was partially offset by spending on food, non-alcoholic beverages and recreation. 

ONS said housing costs, including mortgage and rental payments, had become “increasingly substantial” and were exceeding food and energy as the main cause of higher household expenses. 

Overall, UK household costs rose by five per cent in the year to December, ONS found, which was lower than the inflation rate of 8.3 per cent in September. 

In the four years to December 2023, private renter households have had the lowest cumulative rate of household cost inflation at a rate of 21.2 per cent. This compared to around 24.8 per cent and 26.4 per cent for other tenure types. 

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “People who are staggering under the weight of their mortgages have paid the price of multiple interest rate hikes. Because while interest rates have been hiked to keep a lid on inflation and help keep life more affordable, the reality for this group has felt very different.  

“Their household costs have risen far faster than for those who own their own home, and even faster than for renters.” 

She added: “It means particular groups of people are facing the brunt of higher rates. Newer buyers, who paid more for their homes, are wrestling with bigger mortgages.  

“Given just how expensive life is at this stage, it’s going to mean already stretched budgets are pushed to breaking point.” 


Non-retired parents experiencing higher costs 

People with children are more likely to have a mortgage, making up 51 per cent of mortgaged households compared to 46 per cent of outright owners with no children in the house.  

Mortgaged households are also more likely to be in work, with 42 per cent being non-retirees while 79 per cent of outright owners are retired. 

Non-retired households saw a higher rate of inflation at 5.4 per cent in the year to December, compared to a rate of four per cent for retired households. 

Similarly, households with children reported an inflation rate of 5.5 per cent and households without children saw costs rise by 4.8 per cent over the same period. 

Coles said: “Those who are least affected by all of this are retired households, many of whom own outright. It’s one reason their household costs are rising so much more slowly than non-retired households. They still have real challenges, particularly the huge numbers of lower incomes who are still dealing with impossible energy bills.  

“However, wealthier retirees will be in an enviable position.” 

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