So, they’ve done it again! Cut the base rate! Looks like more to come too this year. We could be at 3% by 2026 (if my own back of a packet calculations are anything to go by). This could do wonders for my house price.

The truth at this point is it doesn’t really directly affect me all that much. I’m one of those smug a*******s who locked in low for long back in 2022. 

But my renewal is up in 2027 and things are certainly moving the right way for that. But there is something else about my house that this news will be good for – how much its worth. 

Low rates, high prices

Here’s how things work (at least in theory). When rates are high(er) there is less money in the system looking for a home. More of it is locked up in savings, or spent paying down expensive debts.

But when rates are low – as was the norm from around 2009 to 2022 – then savers struggle to find a good place to park their cash so as to beat inflation. This leads to an asset price boom.

One of those assets which did particularly well is property – housing.

But for those of us who bought just as this boom was ending, i.e. when rates were soaring upwards, this hasn’t been the story.

House prices, broadly, have barely moved. I can’t be the only homeowner who gets the monthly Zoopla email telling me how much my house is currently worth.

Although how online data is able to tell me that with significant accuracy (Zoopla if you’re reading this please drop me a line!), my home’s value has bobbled up and down around what we paid for it for around three years now.

LISTEN: Mouthy Money podcast on why the bank rate is falling

Property market bonanza

Are we about to have a property market bonanza? Perhaps not. The economy is near enough in the bin. This isn’t making it easier for people to cobble together deposits, moving costs, stamp duty fees and everything else.

But the FCA is looking at easing mortgage criteria which should bring more buyers onto the market.  And the more rates get cut the cheaper mortgages will be and the better this will support house price rises. 

We’ve also actually experienced something of an affordability reversal as workers have seen their wages rises substantially in the past two years, while property prices have stood still.

For my part, we’re not going anywhere for now so the value of the house is sort of irrelevant. The least I can ever hope for is not to be in negative equity. 

Are the heady days of soaring house prices coming back for homeowners? Time will tell. 

The post Base rate cut: excited to see my house price go up appeared first on Mouthy Money.

Mouthy Money’s latest articles discusses five ways the cost-of-living crisis is hitting young people’s finances the hardest.

Up and down the country, the cost-of-living crisis is having a significant impact on everybody’s wallets. But research from the Intergenerational Foundation shows under-30s are being disproportionally affected.

It seems nothing is off limits to the current cost-of-living crisis in the UK, with prices rising 9% in April 2022 according to the Office for National Statistics (ONS). This has been exacerbated by the Russian invasion of Ukraine, but was born out of issues created by the pandemic.

For most young people – myself included – fears and anxieties over low pay, insecure jobs and student debt have just gotten worse.

The past few months have seen big changes to everyone’s personal finances, but there are five areas that I feel are hitting young people the hardest right now.

1. Wages

At the end of March, the Government announced an increase in the national minimum ‘living’ wage.  For 21-22-year-olds the rate would go up 9.8% to £8.36 an hour.

This should have come as good news for most. The increase amounts to around an extra £1,000 a year into young worker’s full-time wages. But the increase is starting from a very low base, and is not enough to keep up with the rising cost of living.

Young people are most likely to work in low-pay sectors such as hospitality and retail according to the Resolution Foundation, earning minimum wage and often on zero-hour contracts that provide no job security.

The gig economy exacerbates the problem, despite some benefits, and leaves employees with little-to-no rights regarding unfair dismissal, right to the national minimum wage. It also leaves many with an income that can vary month to month, making it difficult to budget appropriately.

Many look for a second job to make ends meet. This is confirmed in the most recent employment data from the ONS which shows the average hours worked by part-time workers has reached record levels.

2. Student debt

Another financial hurdle for graduates comes from Rishi Sunak’s Spring Statement. Rishi Sunak has claimed to be cutting taxes, while secretly allowing inflation to push millions more people – who were struggling financially as it was – into paying more tax.

Graduates will now be paying more for their student loans, starting from a lower threshold. This is paired with a significant interest rate hikes from 4.5% to 12% that will come into effect in the Autumn.

This will hit graduates hard as the student loan repayments will kick in at a lower level, meaning many on starter wages will see a 9% levy on their income sooner.

A study published by the NUS ahead of the Spring Statement in March 2022 revealed that more than one in four students have less than £50 to live off a month, with 5% visiting food banks and 13% using buy now pay later schemes such as Klarna.

Many students fresh out of university are not prepared financially to start a new job or move out without help from the Bank of Mum and Dad.

Moreover, graduates will now be expected to repay their loans for 40 years before the debt is written off, compared to the current 30 years. Under this new system, more than 70% of graduates will repay their loan in full, compared to just 20% today.

These policies mean young graduates will be paying an effective 50% tax rate on earnings above the threshold when you consider national insurance, income tax and student loan repayments.

3. Housing

Speaking of the Bank of Mum and Dad – many young people are choosing to move back in with their parents due to rising rental costs. Rents have skyrocketed by £100 per month more than a year ago, according to Zoopla.

In October last year, the Resolution Foundation published its Intergenerational Audit, which revealed people in their early 30s will spend three times as much on housing costs as previous generations.

This is particularly relevant in London, where finding a room with enough space for a desk and is commutable to work will set you back at least £650 a month. And it’s only going up, as landlords are worrying about rising energy prices as well.

The sharp increase in house prices has left young people much more at the mercy of the rental market than previous generations. Where their money used to go on saving for a deposit, it now goes straight into their landlord’s pockets.

It’s the harsh reality for young people who will now have to make sacrifices regarding their social lives and significantly cut down on expensive habits such as drinking, smoking, and eating out to get by.

Although as we discovered during the pandemic, living a more insular life is going to have a negative impact on people’s mental health too.

4. Fuel and travel

Young people, who will be commuting to work every day, will be feeling the pinch when it comes to rising fuel prices. The current conflict in Ukraine has resulted in wild fluctuations in the price of oil and gas, but this has only exacerbated a problem that was already growing.

Unfortunately, it’s difficult in rural areas if you must commute via car, but if commuting via public transport is possible and savings can be made if you live in urban areas.

Although trains in the UK are notoriously expensive, there are ways to save money when travelling around the country. A necessity for any young person is to have a 16-25 Railcard. It costs £30 for one year or £70 for three. You can also now get a railcard between 26-30 years old.

If you can spare the £70 it is well worth the purchase, as you will pay this back in a few trips if you use the trains regularly. Also, when possible, try to travel on off-peak routes. They’re considerably cheaper than the peak times and aren’t ridiculously late or infrequent.

The current fuel crisis could be a catalyst for people to find alternative ways to travel, not only to save some money, but to help the planet – as climate change is one of the biggest issues facing the world at this time. A blend of remote and in-office working seems to be the overall trend.

5. Financial literacy

In the UK, debt and credit is a part of our lives. It’s how we finance our homes, cars, and many other large purchases. Three-quarters of 22-year-olds are already in some form of debt – so how do they stop themselves from spiralling into more? Unfortunately, this is a trend I have witnessed within my own social circles.

Financial literacy is rarely taught in schools. Either you take the initiative to teach yourself, or you’re lucky enough to have people around you such as friends and family who are willing to guide you on topics such as budgeting, saving, living within your means, paying bills on time, and even planning for retirement.

However, with the rise of technology, it seems younger people are finding alternative ways to change their financial behaviours. More traditional ways of investing have been replaced for more exciting (and volatile) cryptocurrencies and NFTs, while saving apps such as Plum, Moneybox, Nutmeg and Chip are taking the effort out of putting money aside or investing.

There has also been an increase in online finfluencers, with new research from our very own Mouthy Money revealing that more than three in five (62%) of 18-29-year-olds follow finfluencers, with almost three quarters (74%) trusting the advice they provide.

Surprisingly, nine in 10 (90%) have been encouraged to change their financial behaviour. This rising trend has come at the perfect time, with a correlation between this and the current cost of living crisis more than likely.

Two in five (40%) have subsequently reduced their spending, just under one in four (38%) have invested in a variety of assets, one in three (29%) have started budgeting, and one in four (25%) have paid off debts.

The rise of the online finfluencers has coincided with young people’s growing interest in financial markets during the pandemic. Nearly (57%) 18-29-year-olds currently invest and more than half of those (59%) started after March 2020 when lockdown restrictions began.

For younger people, it has never been a more important time to take advantage of these services and educate yourself.

Photo by Tim Gouw on Unsplash

The post Five ways the cost-of-living crisis is hitting young people’s finances appeared first on Mouthy Money.

Mouthy Money has launched a new series where we get experts to answer readers’ questions about money. If you would like to ask a question, get in touch here.

Question: Why does everyone talk about the need for house prices to keep rising? I am saving for a deposit, surely for first time buyers we would like to see house prices fall somewhat? (Anonymous)

Nathan Emerson, the chief executive of Propertymark, a property industry professionals association, says: There are several factors which necessitate a progressive housing market. 

Simply put, the housing market is a key part of the UK economy and a driver for many other sectors ranging from legal services through to construction through to retail.

This places a huge reliance on the housing market to not only underpin our own financial wellbeing but also directly the nation’s financial health.

In addition, we have an ageing population and it is widely known that property downsizing is utilised as a means to fund retirement. There are also insufficient state resources to meet the cost of social care and nursing home provision.  

As a result of this retirement planning and assisted living care is often provided by way of property sales. Without a market keeping in pace with or above inflation the provision to fund post retirement care would be considerably compromised. 

The challenge is not only helping new first-time buyers onto the ladder, but also ensuring property prices over the medium to long term maintain a manageable stable trajectory without considerable swings in pricing.

Supply and demand of property is crucial in addition to affordable financial products to assist home purchases if the UK is to continue to aspire to have home ownership. The average age of renters in the Private Rental Section has increased due to a number of factors including the cost of purchasing a home.

There are a raft of government schemes aimed at first time house buyers and this will no doubt be enhanced in the near future in addition to more new homes building with assisted schemes to enable first time buyers to enter the housing market.

In effect there is no simple answer as whilst considerable reduction in process would allow more people to join the housing ladder, the resulting decreases in price would undermine the economy and the provisions it can then in turn support.

• Your Questions Answered: Have you got a burning money question? We want to help! We’ve got a panel of experts on hand that can explain and give guidance to you for your personal finance problems. Find out how.

Photo by David Jakab from Pexels

The post Why are rising property prices seen as a good thing? appeared first on Mouthy Money.

There are 10 key ‘pillars’ to financial independence, says Mouthy blogger Finance Dee. In part one of a two-part blog, she explains the first five.

In my two previous blog posts, we discussed the basics of the financial independence retire early (FIRE) movement. So now it’s time to shift focus a little to discuss important and practical concepts that can help someone to achieve their FIRE goals.

The 10 Pillars of Financial Independence (FI) were developed by two Americans, Brad Barrett and Jonathan Mendosa from ChooseFI. The pillars are not designed to be a step-by-step process, but rather a framework to support people on their FIRE journey.

Although the 10 pillars are targeted toward an American audience, I will be discussing these concepts from a British perspective.

1. Low-cost housing

In the book ‘Choose FI’ the authors talk about house hacking in order to reduce your largest monthly expense – housing costs. From an American perspective, this is the idea of buying a duplex or multiplex and living in one part of the multiplex and renting out the rest.

In the UK, we do not generally have multiplex properties, but we do have a great rent-a-room scheme. This scheme allows homeowners to rent a room out in their primary residence where the first £7,500 received in rent payments are tax-free.

If renting out a room in your house is not your thing, a good rule of thumb is to aim to keep monthly housing costs (rent or mortgage) between 30-35% of your net income – or less is even better!

2. Buy used cars

For any car fanatics out there, this may rub you the wrong way. But the sad reality is cars are one of the worst investments you can make as they depreciate at a rapid pace.

Brand new cars, in particular, give a poor return on investment as they depreciate on average by 15-35% in the first year alone, and up to 50% or more over three years according to the Money Advice Service.

Buying a used car does not mean driving a beaten-up banger – unless that’s what you prefer – but the aim is to let those who can truly afford to ‘throw money away’ on brand new cars to take that initial financial hit.

By buying a car that is four years old for instance, you can still benefit from a relatively new car but potentially save up to 50% of the original price.

3. Crush your grocery bill

I will admit we are very privileged in the UK when it comes to reasonably priced food – take it from someone who lived in the US for nearly a decade!

However, we can still work on ways to reduce our food bill here, such as shopping from a list, price matching between shops, and shopping in the evening to get those beloved yellow ticket items!

Needless to say, increasing home-cooked meals and reducing takeaways is another sure way to fatten your pockets.

4. Tax optimisation

In the UK, we have various investment vehicles which allow our money to grow without having to pay taxes.

Individual Savings Accounts (ISAs) and Self-Invested Personal Pensions (SIPPs) are tax wrappers all British adults have access to. Even kids can have a pension though, or a junior ISA (JISA). The younger you get started, the better.

For investors, understanding what capital gains and dividend taxes are and how to avoid them is an essential part of being able to optimise your investment income too.

5. Low-cost index fund investing

If there is one thing foundational to the FIRE movement, I would say it is low-cost index fund investing! The reasoning is that index funds are rarely outperformed by actively managed funds, yet they have much lower fees.

Investing is one of the most important aspects of the FIRE movement as it allows you to maximise your savings growth in a way that just isn’t possible in old-fashioned savings accounts.

Moreover, index fund investing means you do not need to spend lots of time researching individual companies to invest in. The fundamentals are already done for you and you get the ease of investing in hundreds or thousands of companies through one investment fund.

Next month I will be following up with the next five pillars so make sure to check back for part two.

Photo by Hamann La from Pexels

The post The 10 ‘Pillars’ of financial independence – part one appeared first on Mouthy Money.

LISTEN: Mouthy Money co-editor Edmund Greaves appears on talkRADIO to discuss the possibility of the government scrapping council tax and Stamp Duty in favour of a new property wealth tax, plus why first-time buyers need 20% deposits now and which councils made the most money from parking fines. Listen in the Soundcloud player below.

With thanks to talkRADIO.

Photo by Mike from Pexels

The post LISTEN: Should council tax and stamp duty be ditched for a new property wealth tax? appeared first on Mouthy Money.

With thanks to talkRADIO

Photo by PhotoMIX Company from Pexels

The post LISTEN: Self-employed denied credit cards and loans, furlough payment holidays, and should you sell your house now? appeared first on Mouthy Money.