400,000 people have been pulled into poverty by mortgage rates, research finds

New research from the Joseph Rowntree Foundation (JRF) has discovered 120,000 households will be facing poverty if mortgage rates stay at 5.5%.

Mortgage rates have been climbing since December due to banks upping their interest rates because of inflation. This week the banks base rate has been increased to 3% which is estimated to add around £3k per year on to mortgage bills for households set to renew their mortgages.

The JRF, an independent social change organisation working to solve UK poverty, has found over 100,000 households in Cardiff, which works out at 400,000 people, could see a monthly increase of £250. 

The independent UK organisation has also discovered 750,000 households that are on a low-income, which is the equivalent to 2.4 million people, with a mortgage are currently living in poverty, due to facing rising food and energy costs.

Because of higher mortgage rates, as people re-mortgage or remain on variable rate mortgages, which is where the interest rate is subject to change through the term, JRF is warning that there is an increase in demand for private renting as households struggle to access mortgages or have to sell their mortgaged properties.

The social organisation is also warning that even if the housing market returns to ‘normal’, where mortgage rates fall below 3%, lending criteria could be stricter making it more difficult for first-time buyers to get on the property ladder.

Due to this, JRF are calling on the government to act in response to this unfolding crisis by:

• Protecting mortgage holders likely to face the most acute financial distress so they can remain in their home
• Providing emergency support to private renters
• Maintaining housing transactions so the market doesn’t shut down, by keeping first time buyers in the market and expanding the capacity of councils and housing associations to buy homes
• Setting out an overall goal of achieving a managed correction in house prices

Darren Baxter-Clow, Senior Policy Adviser at JRF said: ‘The Government should rightly be concerned about the looming mortgage crisis and the crisis already being faced by private renters.

‘Support must be targeted at mortgage holders in poverty and those who could be pulled into poverty by their housing costs who risk losing their homes, along with private renters who are already facing rapidly rising costs.  

‘However, any support must not just prop up a broken housing market. Exorbitant house prices have shut millions out of homeownership for decades and trapped too many in an unaffordable, insecure, and poor quality private rented sector.

‘Any crisis support must end the current cycle of boom and bust and work towards a healthier and more equitable housing system.’

Photo by Towfiqu barbhuiya