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There are ways to ease the strain on clients' cost of living

Mark Rodgers

Last year, as the economy opened after more than a year of Covid-19 lockdowns and as oil and gas prices went on the rise, economists predicted that inflation would peak this April so that by now we should have started to see inflation fall. But things are seldom simple. 

We continue to face a perfect storm of economic and geopolitical factors that are contributing to prices rising at their fastest rate, and consequently the sharpest drop in living standards, for 40 years. 

Inflation rose to 9 per cent in April as the average petrol price increased by 12.6p per litre in response to the Russian invasion of Ukraine and the energy cap jumped 54 per cent, both of which coincided with tax raids to help reduce some of the debt the government took on to fund extensive pandemic relief packages. 

We are seeing the biggest real-terms fall in incomes since the 1970s and the peak of the crisis is expected to be some months away yet, as the Office for Budget Responsibility now forecasts inflation will not peak until October, when Ofgem increases the energy price cap once again.

Consumers are responding to the squeeze in the hope of maintaining their living standards, or for many, just to get by. Credit card spending is on the rise; UK Finance’s latest statistics show that balances on credit card accounts grew by 3.8 per cent over the 12 months to January.

The Bank of England’s consumer credit statistics also show the highest amount of borrowing via credit card was recorded in February 2022 (its most recent calculation) at £1.49bn. 

The BoE has also been responding by voting in four consecutive monetary policy meetings to increase interest rates, with the latest rise to 1 per cent, and it is expected to reach 2.5 per cent by the end of the year. This means homeowners on tracker or variable rates are experiencing rising costs in yet another area of their finances. 

But opportunities are available to ease the growing strain on daily expenditure, especially for those who are heading towards retirement and have few earning years left or are already retired.

Equity release

If not undertaken already, advisers should use cash flow modelling tools to demonstrate the impact of inflation on their clients’ finances and to discuss what adjustments may need to be made. 

One opportunity that a growing number of over-55s are embracing to source capital is equity release.

Amid the widespread economic volatility over the past couple of years, property prices have continued to grow firmly and consistently. This month, house prices are up 12.1 per cent on this time last year, and have been increasing at the fastest annual pace for more than 17 years, according to Nationwide.

An equity release loan unlocks a tax-free lump sum of a home's equity while ensuring 100 per cent of the property remains with the owner – this has usually been an area of worry for clients. This makes for an effective way of raising money for retirement without having to downsize or move to a less expensive area.