Navigating the Cost of Living Crisis in Later Life: Protecting Your Financial Stability
The UK is currently experiencing a cost of living crisis, the likes of which we haven’t seen in the country for more than 40 years.
While a lot of the focus has recently been on the fact that the average mortgage deal now has an interest rate of more than 6%, it’s important to remember that the cost of living crisis doesn’t just affect mortgage rates; it has an impact on everyday life for all individuals — regardless of their homeowner status.
For example, the cost of food and non-alcoholic beverages continues to rise at record rates. According to the Office of National Statistics, the prices of food and non-alcoholic drinks in April 2023 grew at the second-highest rate in over 45 years. Contributing factors include the ongoing Russian invasion of Ukraine in February 2022, which significantly impacted the global supply of grains. Other issues, such as labour shortages and droughts in North Africa and Europe, have also compounded matters, leading to empty shelves, enforced item rationing and higher imported food/drink prices.
Meanwhile, the monthly increases in gas and electricity prices in April of last year were the largest ever recorded. The annual increases in October 2022 were also the largest recorded since 1970.
Due to their age and limited ability to increase their monthly income, older people are one of the worst affected groups by this cost of living crisis.
In April of last year, the average energy bill of just under £2,000 was 20% of the £9,627 per year State Pension. The high cost of energy caused many older people to worry about the impact that it would have on their livelihoods.
The impact of inflation
Inflation has drastically impacted the quality of life for many people within the UK. As highlighted by the House of Commons in their June 2nd research briefing — Rising cost of living in the UK, the cost of living has “increased sharply” across the UK during 2021 and 2022, with the annual rate of inflation reaching as high as 11.1% back in October 2022. This figure marked a 41-year-high for inflation rates.
UK food price inflation was among the highest across G7 economies in March 2023, second only to Germany. While the inflation rate has decreased in recent months, the inflation rate is still considerably higher than the 2% target inflation rate set by the Bank of England.
According to Halifax HPI, the UK’s longest-running House Price Index, the average house price remained flat in May and decreased by 1% compared to this time last year. However, while property prices have now fallen by about £3,000 during the previous 12 months, they are still approximately £25,000 above the level they were two years ago.
However, the situation is arguably worse for later-life renters in the private sector. For example, data shows that private rental prices increased in the UK by 4.4% in the year to January 2023. As a result, it is now more cost-effective to consider becoming a first-time buyer.
The triple lock
Thanks to recent legislation changes, pensioners in the current tax year can once again enjoy the benefits of The Triple Lock system.
For those unfamiliar with the term, The Triple Lock is a pension guarantee/protection scheme introduced in 2010 to protect vulnerable elderly Britons who relied on a state pension.
The name “Triple Lock” comes from the fact that the scheme is a three-way guarantee that is based on the following:
- A 2.5% rate
- The average wage growth between May and July (compared to the three months in the previous year)
- Inflation using the consumer prices index measure in the year to September
The Triple Lock guaranteed that the State Pension would not lose value as it would increase in line with inflation.
The Triple Lock was suspended for the tax year of 2022-2023 amidst a backdrop of furlough and business support schemes, which caused the funds of pensioners to be squeezed as inflation increased the prices of everyday goods. However, this past November, the government announced that the State Pension Triple Lock would be honoured in 2023, meaning that those receiving a State Pension have seen an increase of a little over 10% this April.
The full state pension for 2023/2024 is now just over £10,600 a year, or £203.85 a week.
How can later life mortgages improve your living?
Later-life mortgages are designed for those in the later years of their lives. Targeted at homeowners aged 55 and over, they can be a great way of borrowing money in your retirement and allowing you to access some of the value (equity) in your home whilst continuing to live in it.
Releasing your home’s equity allows you to use the money in several ways, be it to repay a mortgage coming to the end of its term, to help support your family, or to complete home improvements. Most objectives, except investment, can be met with a Later Life Mortgage.
At Henry Dannell, we advise on a wide range of Later Life products. Many available products include a fixed interest rate for life with the flexibility of voluntary payments, helping you manage your finances as you wish.
Are you interested to see how Henry Dannell can help you? Speak to one of our specialists to explore your options and learn more.
Please note: Later Life product options include Retirement Interest Only and Lifetime mortgages. To understand the features and risks, always obtain a personalised illustration.