An average earner faces a £1,533 annual shortfall as rising costs outstrip average wage rises, new research shows.
Between April 2022 and 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 for someone who bought an average-priced house in 2022, assuming a 60 percent LTV, based on Moneyfacts data for an average two-year fixed mortgage.
Food prices increased by £833 for an average household while tax increased by £744.
Overall, expenses rose by nearly £4,913 when factoring in mortgage, food, and tax, whereas average wages only increased by £3,390. This resulted in an annual deficit of £1,533.
Alice Guy, head of pensions and savings at interactive investor, said: “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.”
Ms Guy also noted the impact of fiscal drag, which 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.
Ms Guy said: “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.”
Ms Guy added: “A mortgage payment that was a huge stretch can seem much more affordable over time.”
However, the “good news” is that there is a glimmer of hope regarding interest rates, as many mortgage providers are now offering lower rates compared to just a few months ago.
Based on Moneyfacts data, today’s average two-year fixed residential mortgage rate is 5.73 percent, and the average five-year fixed rate is 5.31 percent.
These rates represent a notable decrease from December 1, where the averages were 6.04 percent for a two-year fix and 5.65 percent for a five-year mortgage.
For savers, Ms Guy said: “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.”
