More bad news has emerged for consumers in the last few days. Headline consumer price inflation has now climbed above the 5% level.
The Nationwide Building Society has just published its latest consumer confidence index that shows confidence has slipped lower for the fourth consecutive month and has now reached the second lowest reading on record.
Interestingly, brands including Tesco, previously seen as bullet-proof in terms of their ability to grow their profits regardless of what appears to be happening to others around them, have seen a reduction in their UK business profits.
Consumers are quite understandably reining in their spending, becoming less loyal and more discerning in where they choose to spend their decreasing incomes.
I read an article in the Daily Telegraph that commented that the average UK household would need to spend an additional £1,768 to maintain its standard of living against the same time last year.
These are quite incredible figures, but not surprising with average wage growth effectively zero for the majority, and even for those enjoying some element of wage increase, the effects of inflation at 5.2% mean that for most their pounds buy less of the same goods and services than in previous years.
For those living on fixed incomes, including those in receipt of state pensions and welfare benefits etc, the only good news to come out of this is that September’s CPI index figures will be used as the basis for linking rises in the payment of these benefits for the next twelve months, thereby helping to maintain some degree of equilibrium.
Many borrowers will currently be debating the merits of remortgaging. At the current time, with rates on most products, be they 2, 3 or 5-year fixed deals and / or trackers at or close to all-time low levels, for those whose circumstances allow and for those who do not have the benefit of a super-low SVR from their lender, the reasons to consider remortgaging look increasingly compelling.
For many borrowers the mortgage repayment represents the largest monthly household commitment, and as a consequence the ability to provide certainty by fixing mortgage repayments will help instill confidence in one’s ability to budget better.
Borrowers who have savings, many of whom are currently receiving next to nothing in terms of interest could well do better by considering the merits of remortgaging on to an offset mortgage.
By combining together one’s mortgage, savings accounts including in some cases Isas and bank account(s), an offset can provide a combination of a reduction in overall interest repayment, a shortening of the period over which one pays one’s mortgage, and a tax-efficient use of savings balances, particularly for higher rate taxpayers, to name but a few.
With consumers increasingly under financial pressure, advisers need to be drawing borrowers’ attention to the range of options out there to help them manage their way through the current economic turbulence that many are experiencing.
Brian Murphy is Head of Lending at Mortgage Advice Bureau
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