Consumers feel the pinch

If you were to take a snapshot of UK consumer finances at the moment, you’d be excused for feeling less than chipper. The Centre for Policy studies has recently published a report that shows that the total cost of running an average home (with mortgage) rose from £9,837 during 2006, to £11,780 during 2007. This equates to a rise of almost 20% - almost double the average annual increase in the preceding 4 years, and well beyond the rate of inflation. The CPS cites stagnating incomes, rising council tax bills, increasing mortgages, and sharply increased utility bills as the reasons that household expenses are being squeezed so tightly. One of the steepest increases in the last few months has been gas and electricity prices – 5 out of 6 of the main energy companies have sharply increased their prices recently, adding up to £200 to annual household energy bills. Add to this factors that are not included in the PLC analysis such as the rising cost of rail travel – which in some areas of the country rose by almost 15% in January – and the picture becomes increasingly bleak.

The main effect of this is that many consumers are seeing their disposable income shrink, which is putting pressure on the economy as they adjust their behaviour to reflect this. This issue is being compounded by the credit crunch, which has seen lenders tighten their belts with regards to consumer credit; lenders are staying as far away as possible from high-risk lending, and fewer loan, mortgage and credit card applications are being accepted as a result. Those that are being accepted may find that they are unable to obtain headline interest rates as lending criteria are tightened; even good credit customers are being penalised as banks offload low profit credit card customers in an effort to boost profits. Consumers with mortgages, or personal debts in the forms secured or unsecured loans may have found that the Bank of England interest rates cuts over the past few months have not eased the strain on their finances, as many lenders are failing to pass on the rate cuts to consumers. Many financial groups that saw large chunks of their capital disappear virtually overnight as a result of the US sub prime mortgage lending crisis are attempting to rebuild their balance sheets, and increasing their margins on consumer lending is a fast way to increase profits as the BoE interest rate falls, and compensate for higher lending costs among the banks themselves.

The outlook may seem unrelentingly grim, but don’t lose heart! There is still a great deal of competition between lenders and suppliers as they vie for the customers who are looking for a better deal, so there are still savings to be made for those consumers who are proactive enough to vote with their feet. If your utility bills are rising or you are finding it difficult to obtain credit at an affordable interest rate, don’t just accept it without doing your research; there is nearly always going to be a better deal available elsewhere, and finding it does not have to be a difficult and time consuming task.

If you are interested in finding a better deal elsewhere, on loans, credit cards or even mortgages, use an independent online comparison site to compare deals – see ours here; if you make an application that is declined, or is offered at higher interest rate than you wanted, pick up the phone and ask for a better deal. You may be surprised by the result, as quite often a lender will drop the interest rate or turn a decline into an acceptance, particularly if mistakes have been made during the application process.

Please note: This website, and the articles and information within it are based on journalistic research. It does not and should not be construed to constitute financial advice. Any information should be considered in regard to specific circumstances. All tips are followed at your own risk and should be followed up with your own research.  For more please refer to our terms and conditions of use.