Inflation in the UK may be slowing, but the nation is still facing a turbulent economic outlook and has led one expert to warn that 2024 will be “messy for politics and for living standards”.
Economic think-tank the Resolution Foundation said in a recent assessment that people who have seen the price of everyday essentials shoot up during the cost of living crisis can expect some relief this year as costs come down. There are some major caveats, however, which mean most of us are still worse off in real terms.
Household costs are likely to be at the forefront of debates during an election year, and with the Tories trailing behind in the polls, Rishi Sunak will have a lot more convincing to do ahead of the 2024 general election. While the aspiration of home ownership has long been treated as a core value of the Conservatives, polling suggests many homeowners could turn their back on the party as their fixed-rate mortgages come to an end this year.
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The Resolution Foundation warns that 1.5 million households re-mortgaging this year face an annual payments to rise by £1,800, presenting a significant challenge to Sunak and his party. Here, Yahoo News explains why mortgage holders are expected to take a hit this year – and who might benefit in 2024.
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Why are mortgage-holders facing higher bills in 2024?
As the Bank of England has tried to control soaring inflation, it has kept the base rate of interest especially high. The idea is that raising the cost of borrowing reduces how much is spent across the UK and effectively “cools down” the economy.
With loan repayments now considerably higher, mortgage-holders who had previously been shielded by fixed-rate deals will be in for a nasty shock when it comes to renewing this year. That means a projected 1.5 million households looking to remortgage in 2024 will see their average annual mortgage bill rise by nearly £1,800.
“It is people with higher housing costs than a year ago but no increase in pay who look most vulnerable as the cost of living crisis continues,” the Resolution Foundation says in its report, adding that people who own their homes outright are much less likely to feel the pinch.
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What about renters?
Renters may not take quite as much of a hit in 2024 as mortgage-holders, although their overall household costs are still likely to rise.
Recent estimates from the Office for National Statistics (ONS) suggest that average private rents have risen by 14% over the past two years, although some in longer-term tenancies have been shielded from recent increases. Those whose rent has been reviewed or have started a new tenancy will have faced steeper rises, the Resolution Foundation says.
What’s the good news?
The good news is that food prices are no longer rising, and that energy bills are falling (and could fall another 14% in April), the Resolution Foundation says.
National Insurance cuts coming into effect on 6 January, including a 2% fall in the main rate of employee NI, is set to benefit 29 million workers by an average of £330 per year. While higher interest rates are presenting a headache for many mortgage holders, they have improved household finances in other ways for the first time.
Households don’t have as much debt as they used to, and higher incomes for savers have arrived quicker than higher costs for borrowers. However, this is in part due to people being protected by fixed-rate mortgages, so that may all change by the end of the year.
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Real pay growth has also made a return, with the Office for Budget Responsibility expecting real earnings to grow by just short of 1% over 2024. This may not sound like much, but it is nonetheless an encouraging sign that the UK is moving in the right direction.
However, people are unlikely to feel this benefit very much, as decades of pay failing to keep up with inflation mean voters going into an election late in 2024 will still have lower real wages than they did in 2006.
Who else is set to lose out?
Cuts to National Insurance may see people making some modest gains, but these are likely to be offset by a number of other tax reforms.
With income tax and national insurance thresholds entering the third year of a six-year freeze, those earning below £26,000 will either be worse off or unaffected, while those earning more are set to benefit, the Resolution Foundation says.
As cost of living support payments end in February, poorer households are set to lose out. The Resolution Foundation says that despite an inflation-linked uprating of benefits, financial support for these households will still fall in real terms.
Read more: UK economy left on ‘knife edge’ as rate hike torrent takes its toll
Where does this leave Rishi Sunak ahead of the 2024 election?
While the Resolution Foundation’s assessment portrays a mixture of gains and losses, depending on who you are, and a degree of uncertainty, the think tank says the big picture is clear: “Britain is poorer”.
With housing costs at the forefront of this discussion, Sunak has a lot of catching up to do, with recent polling put together by YouGov showing the public is consistently becoming more unimpressed with the government’s handling of housing.
While the aspiration of home ownership has long been seized upon by the Tories as a Conservative value, the party appears to be falling out of favour with many homeowners. Recent YouGov polling of voting intention by housing tenure shows Sunak’s party is only in the lead among those who own their homes outright.
Among mortgage holders, many of whom are expecting to take a financial hit in an election year, 35% said they would vote for Labour if an election was held tomorrow, compared to just 15% for the Tories.
In a bid to turn its election prospects around, the Conservatives are seeking to cut costs for first-time buyers, but the party’s game plan is still up in the air. According to the Times, one plan under consideration is a scheme for longer fixed-term mortgages, to reduce the size of deposits – which are common in the US.
Source: UKnews
