Rising mortgage costs will see typical income among mortgage holders fall by 12 per cent over the next two years compared to the start of 2021.
This drop in real income will see the higher living standards that have been achieved by mortgage holders over recent decades reduced.
This is according to think tank Resolution Foundation which has forecast that the second year of what it has labelled a cost of living “disaster”, may be as bad as the first.
In its living standards outlook for 2023 released this week (January 9), the organisation noted that new patterns of inequality will emerge in the years ahead as the UK returns to an era of higher interest rates.
At the end of last year, the Bank of England increased the base rate by 0.5 percentage points, bringing it to 3.5 per cent as inflation stood at a 30-year high.
Inequality will also emerge between mortgage holders as those who need to remortgage in 2023 will see their short-term financial resilience hit nearly four times as hard as those whose mortgage terms stretch into 2024.
According to the Resolution Foundation, as a result of higher interest rates the typical income of mortgage holders will fall from 30 per cent higher than the overall median in 2021-22, to 22 per cent by 2024-25.
Wealthiest to prosper
Elsewhere, the report noted that those at the very top of the income distribution will do “very well” from rising interest rates.
Rising interest rates will boost savings and investments so that the income of the top 5 per cent is on course to rise by 4 per cent between 2021-22 and 2023-24.
The think tank forecasts that the cost of living crisis should ease in 2024 but noted that real wages are not predicted to return to their Q1 2022 level until the end of 2027.
This is despite the fact nominal pay has risen by the fastest rate this year since 1991.
Inflation has caused real pay to shrink, with median household incomes projected to fall by 3 per cent in 2022-23.