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UK households with mortgages were hit by higher inflation than any other household type in September mainly because of rising borrowing costs, according to official data that lays bare the uneven impact of the cost of living crisis.

Household cost inflation for those with mortgages was 9.3 per cent in the year to September, the Office for National Statistics said on Monday, the highest of any socio-economic group.

That compares with a headline cost inflation rate of 8.2 per cent, and consumer price inflation of 6.7 per cent in the same period.

For private renters, the cost inflation rate was 7.2 per cent in the 12 months to September. It was 7.4 per cent for those who owned their property outright.

The ONS said the bigger hit to mortgaged households was mainly because of high interest payments, which increased as the Bank of England raised the cost of borrowing to a 15-year high of 5.25 per cent over the past two years.

Line chart of Household costs indices annual inflation rates (%) by tenure type showing UK households with mortgages were hit by higher cost inflation than other kinds of households in September

The data was part of the first quarterly publication of the ONS household cost index, which is based on how much different types of households spend on goods and services.

The headline inflation rate, by contrast, reflects price growth of goods and services consumed by all UK households.

As a result, food and energy price growth, for example, have a greater impact on the experienced inflation of poorer households because they spend a bigger share of their income on essentials.

The ONS HCI also includes the costs faced by households from changes in mortgage interest rates, stamp duty and other costs related to the purchase of a dwelling, which are not included in the headline inflation rate.

The statistics agency therefore judges that the measure “most closely reflects households’ lived experience”.

In addition to surpassing consumer price inflation in September, household cost inflation peaked at a rate of 12.6 per cent in October last year, compared with the 41-year high CPI of 11.1 per cent.

However, the agency said mortgagors also spent more than other groups on restaurants and hotels, where prices have increased quickly in recent months, contributing 1 percentage point to overall inflation for them.

By contrast, renters spent more on electricity and other fuels. Annual price growth in that category has plunged on the back of a normalisation after the energy shock sparked by Russia’s full-scale invasion of Ukraine.

Rental prices are rising at their fastest pace in at least seven years, contributing 1.6 percentage points to the annual inflation experienced by tenants.

The difference between renters and people with mortgages is likely to widen in the coming months after electricity and gas price growth turned negative in October, while more households were forced to remortgage at higher rates.

Paul Dales, economist at the consultancy Capital Economics, said faster growth in the HCI for mortgagors was “exactly what you would expect and what the BoE would want to see after raising interest rates”.

Higher borrowing costs reduced demand in the economy by squeezing the real incomes of those with debts relative to those without, he added.

Line chart of Household costs indices annual inflation rates (%) by selected income decile, showing Inflation for low-income households peaked at 13.5% in October 2022

The ONS data also showed that the large difference in inflation experienced by poorer and richer households throughout 2022 nearly disappeared in September 2023, reflecting diverging trends in energy and mortgage costs.

In October 2022, annual inflation for low-income households peaked at 13.5 per cent, driven by high spending on energy.

In the same period, high-income households were hit by a rate of 11.5 per cent, 2 percentage points less, the largest gap between the two groups in 13 years.

Dr Sarah Cumbers, chief executive of the Royal Statistical Society, said the professional body had “long been campaigning for the development of the household cost indices as the best way to” represent the impact of inflation.

“We hope the government takes note of today’s figures which show that inflation is higher, and hitting those with a mortgage and social renters the hardest,” she added.

The government was contacted for comment.

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