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Understanding the impact of the cost-of-living crisis – YBS

by: Nitesh Patel, strategic economist at Yorkshire Building Society
  • 17/06/2022
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Understanding the impact of the cost-of-living crisis – YBS
Britain is facing a once-in-a-generation cost-of-living crisis.

Inflation has reached nine per cent and is forecast to rise even higher, and as the cost of everything from food to energy bills increases this will add further strain to the nation’s finances. 

Whether they are wealthy or on more modest incomes, there are significant pressures facing all – and advisers must be aware of the challenges many are facing. Three quarters of people surveyed for Yorkshire Building Society’s inflation nation report said the cost-of-living crisis would have a negative impact on their finances. 

Energy bills are a huge issue and the price cap for the average household was increased to £1,971 a year in April – almost £700 more than previously. The regulator Ofgem has warned annual bills could hit £2,800 a year in October once the cap is reviewed once again. 

Elsewhere, food inflation rose to an 11 year high of 6.7 per cent in April, according to the Office for National Statistics. The Bank of England has raised interest rates five times in the last seven months to try and combat soaring inflation.  

What it means for people 

There are huge repercussions for people as they may suddenly find themselves struggling to meet their existing commitments as energy bills, food costs, utilities and National Insurance (NI) contributions rise.  

With many also struggling to save for a deposit, this has longer term consequences for the economy as some people may choose to delay buying their first home which may have a knock-on effect for second and third-time purchasers. 

However, consumers retain some optimism about the current situation. In the inflation nation report, two-thirds (66 per cent) of people said the current high levels of inflation would be temporary. But many age groups had specific concerns about rising prices negatively impacting their lives. 

Pensioners and those approaching retirement were concerned inflation would affect their standard of living in their later years, and this in turn would mean they were unable to help younger family members financially. Whilst younger people were concerned about their ability to save for a deposit to purchase a first home.   

Support awareness

However often clients are unaware of government or third-party schemes that can help them achieve their financial targets. This includes property purchase schemes, such as shared ownership, and 95 per cent loan to value mortgages, which can help first-time buyers onto the ladder with a smaller deposit.  

This could be a lifeline to hard-pressed purchasers. 

For those struggling to repay their mortgage, there are also options available to help.  

Homeowners can seek to extend their mortgage term to reduce monthly payments and give them some financial breathing room, this should be carefully considered however, as while it will be a short-term gain, it will cost more in the long run If they are financially able to, they could also seek to overpay their loan today in order to reduce the overall amount they will spend in the future. 

Older homeowners may also be able release equity as a means of supplementing their income in this difficult financial period. Property prices have risen significantly in the past year and over-55s may find it prudent to release some wealth from what is usually their biggest asset. This money could also be used to help younger generations onto the ladder. 

Our inflation nation report warns that almost one in five people (17 per cent) have no savings to fall back on if their finances deteriorate – the cost-of-living crisis is serious and without a doubt taking its toll but, for those looking to buy a home, having conversations and taking action now can make a big difference in the long term. 

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