The Resolution Foundation’s Living Standards Outlook for 2025 said some households were yet to come off pre-2022 five-year fixed rates, which averaged 2.81% in June 2021 compared to 5.09% this year.
UK Finance has said 1.8 million mortgages are due to mature this year.
Further, in March, the Office for Budget Responsibility (OBR) predicted that the overall average interest rate would rise from 3.8% in 2024-25 to 4.7% in 2027-28.
The Resolution Foundation said house price increases would also raise mortgage interest bills, and suggested that mortgage costs would “rise faster than earnings, incomes or rents for several years to come”.
It suggested income growth would be flat in 2025-26 and earnings growth would be no lower than 0.6% over the next few years when accounting for frozen tax thresholds and higher council tax. Meanwhile, typical disposable income after housing costs would increase by just 1% between 2024-25 and 2029-30.
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The report also predicted average rental inflation would ease over time.
The Living Standards Outlook said housing tenure played a key role in the predictions made, with mortgagors on track to see their incomes fall by 1% on average as high interest rates weighed on borrowers coming off fixed rate deals.
It was forecast that outright owners would have the fastest boost to living standards with a 3% growth in income.
Adam Corlett, principal economist at the Resolution Foundation, said: “The living standards story of the decade so far has been bust and boom, with Covid-19 and a cost-of-living crisis followed by a much-needed recovery last year. But the rest of the decade looks bleak, with typical household incomes set to grow by just 1% over the next five years.
“There are winners and losers within this weak outlook, with pensioner incomes set to grow by a healthy 5% over the rest of the decade, while the poorest half of the population are set to see their incomes fall.
“But a stronger economy and the right policy interventions can brighten this outlook. Maintaining strong wage growth and returning to pre-pandemic employment levels would make middle-income Britain far better off, while ending the two-child limit can lift living standards for poorer families.”
