Households face £1,533 annual shortfall as rising costs outstrip wages

“Households are facing a triple blow as mortgage costs, food spending and taxes all outstrip wage rises.”

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New research from interactive investor shows that an average earner faces a £1,533 annual shortfall as rising costs outstrip average wage rises.

• Between April 2022 to January 2024 the pre-tax median salary for a full-time worker increased by £3,380, according to ONS figures
• Meanwhile, mortgage costs increased £3,336 since 2022, for someone who bought an average-priced house in 2022, assuming a 60% LTV, based on Moneyfacts data for an average two-year fixed mortgage
• Food costs increased £833 for an average household since 2022, while tax increased by £744.
• Costs increased almost £4,913 for mortgage, food and tax combined, while average wages increased just £3,390, leaving an annual shortfall of £1,533

Rising costs outstrip wages for average family

Average earner based on ONS figures, mortgage costs based on average house price in April 2022, according to ONS data, Moneyfacts data on average mortgage rates for 60% LTV, food costs based on ONS family spending workbook aged 30-49 uprated for inflation.

Alice Guy, Head of Pensions and Savings at interactive investor, says: “Households are facing a triple blow as mortgage costs, food and taxes all outstrip wage rises. And these big costs have a disproportionate impact on low earners, who have less disposable income and therefore less leeway in their budget.

“The heavy shadow of the cost-of-living crisis, still hovering over many families, with key costs far outstripping wage inflation. Mortgage and food costs have soared over the last two years, leaving many families struggling to make ends meet.

“Fiscal drag is also adding to the financial woes of many families, as income tax and national insurance rise faster than wages due to frozen tax thresholds. The rising tax burden means that workers have less take-home pay to help them meet other rising costs.

“It’s especially tough for young families and new homeowners, who often have the biggest mortgage costs, but it’s worth hanging in there as mortgage costs do fall in real terms over the course of a mortgage. A mortgage payment that was a huge stretch can seem much more affordable over time. The good news is that there is light on the horizon when it comes to interest rates, with many mortgage providers now offering lower rates than only a few months ago.

“For savers, higher interest rates may offset some of the costs of higher interest rates. But most young families have modest amounts saved, so this won’t make much of a dent when it comes to costs.

“With costs at a painful high, keeping an active eye on our finances has never been more important. Although inflation is cooling, we all have a personal inflation figure that could be much higher than the headline numbers.”