Interest rate rise causes household wealth to fall by £2.1 trillion

18 Jul 2023

Research carried out by think tank the Resolution Foundation has suggested that recent rises in interest rates have caused household wealth to fall by £2.1 trillion over the past year.

According to the research, UK households have experienced a 'wealth boom' in recent decades – total household wealth rose from 300% of national income in the 1980s to 840% by 2021.

However, a series of interest rate rises have caused mortgage rates to increase, house prices to fall and the prices of corporate bonds to decrease. The Resolution Foundation found that total household wealth has now fallen to 650% of national income – representing the biggest fall as a share of GDP since the Second World War.

The Resolution Foundation also highlighted that there are winners in regard to higher interest rates, mainly younger generations.

Commenting on the issue, Ian Mulheirn, Research Associate at the Resolution Foundation, said: 'Over the past four decades wealth has soared across Britain, even when wages and incomes have stagnated. But rapid interest rate rises have ended this boom and brought about the biggest fall in wealth since the war of £2.1 trillion.

'Those with significant mortgages will be hit by these major changes. But there are winners too from a shift to a world of higher rates and lower wealth. Higher returns will make it far easier for younger people to save for a pension that delivers a decent standard of living in retirement, while lower house prices will make it easier for younger generations to get on the property ladder and others looking to trade up.'