Money Wellness
Polling station sign outside a church
category iconcost of living
calendar icon05 Jan 2024

Fresh living-standards challenge expected in election runup

With a general election widely expected at some point in 2024, it has been suggested voters will be going to the polls with financial concerns at the forefront of their minds.

Research published by the think tank the Resolution Foundation shows that rising interest rates have actually helped boost household income in many cases over the past two years.

But it warns this income boost could be almost completely unwound by the end of 2024.

The think tank explains this is down to the fact that another 1.5 million homeowners will see their annual mortgage costs rise by an average of £1,800 when their fixed-rate deals come to an end this year.

Until now, with many homeowners tied into fixed-rate deals, rising interest rates have only served to increase their savings. And people have significantly more savings than they did back in 2007, as a result of ‘forced saving’ during the pandemic.

Mixed fortunes

Obviously not everyone has been enjoying financial good fortune over the past few years. The Resolution Foundation explains older, asset-rich households have benefitted the most, as a result of having less debt and more savings.

The average household headed by a 65-74 year old has three times as much interest-generating savings as a household headed by a 35-44 year old (£57,000 vs. £20,000), and seven times less outstanding debt (£14,000 vs. £98,000).

Simon Pittaway an economist at the Resolution Foundation said:

“The impact of the unlikely income boost has been very uneven – older, asset-rich households have gained the most, while younger mortgagor households have been hit hard.”

£16bn boost to household incomes

Despite the uneven split in fortunes, overall, interest rate hikes have seen household incomes rise.

Pittaway explained why. He said, in the past, household incomes tended to fall as interest rates rose because the extra cost of debt outweighed any additional income from savings.

But current conditions in the UK – lower debt and higher savings - mean the recent spate of interest rate rises have actually boosted household incomes by £16bn.

Looking ahead

But this income boost looks set to be short lived, as more fixed-rate mortgage deals come to an end.

Pittaway concluded:

“While rising rates have boosted incomes over the past two years, they are likely to reduce them in the year ahead – presenting a fresh living-standards challenge in an election year.”

Avatar of Rebecca Routledge

Rebecca Routledge

A qualified journalist for over 15 years with a background in financial services. Rebecca is Money Wellness’s consumer champion, helping you improve your financial wellbeing by providing information on everything from income maximisation to budgeting and saving tips.

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