Sunday 3rd March 2024

Must-know money: Renters vs homeowners

Here are our favourite must know money stories this week to help you get your head around your personal finances.

From wages rises fuelling inflation, to over-50 pandemic retirees being ‘much poorer’, and the upside of generation rent – here are our favourite must know money stories this week to help you get your head around your personal finances. 

Wage rises fuel inflation, as real pay falls behind 

Regular pay grew by 7.3% between March to May 2023, according to the Office for National Statistics (ONS) equalling the record growth rate set last month. But with inflation currently at 8.7%, real pay is still lagging in real terms. 

The increase has put further pressure on the Bank of England to continue hiking rates in its attempt to slow price increase and cool the economy. Concerns over strong wage growth remain as it feeds consumer demand and further forces companies to increase the prices of their products – a so-called wage price spiral.  

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While a higher wage means you have more money to spend out of your pocket, it is certainly not keeping up with inflation either – regular pay fell by 0.8% overall, after accounting for inflationary impact. 

Sarah Coles, head of personal finance, Hargreaves Lansdown comments: “Somehow, pay is simultaneously too high for the Bank of England’s liking, and yet too low to keep up with inflation.” 

The Bank faces the challenge of carefully working around the tight labour market to end the vicious cycle of inflation and rate rises without hurting the incomes and employment of UK households.  

She added: “It’s likely to mean both that interest rate rises are on the cards, and that more interest rate rises could well exacerbate growing weakness in the jobs market.”  

The upside of generation rent 

Amid turmoil in the housing market, “renting is largely risk and responsibility-free, unlike owning a property,” writes Ben Wilkinson for in The Telegraph. 

While today’s tenants feel the squeeze of the sharp rent rises and competition in the property rental market, things are not quite rosy for landlords and homeowners alike.  

Many have stretched themselves to get on the ladder at the peak of the market – and are now facing punishing mortgage rises, the burden of monthly payments and commitment to decade long contracts, along with the threat of the housing market crashing down. 

On the other hand, renting is risk and responsibility free, according to Wilkinson. Renters have short-term contracts and no maintenance responsibilities – giving them the ability to move easily to access better opportunities in different locations.  

While renters are not immune from surging housing costs and there is a need for better regulation to root out unfair landlords – in the current situation with wobbling house prices, the heavily-mortgaged might wish they were renting.  

Over-50s pandemic retirees are ‘much poorer’ 

People over 50 who left work during the pandemic are “much poorer” in general than other retirees, reports Jemma Dempsey for BBC News. 

Research from the Institute for Fiscal Studies (IFS) shows that 48% of those who retired in 2020-21 were now living in relative poverty. The report found that they cut their food spending by £60 per week on average and nearly half of them had no access to either private or state pensions.  

Older workers between the ages of 50 and 70 who left in the first year of the pandemic were “not retiring in comfort”, the IFS said, compared with those who had retired even just a year earlier.

The study noted that older people who stop working often never re-enter the workforce. “This group may be experiencing long-term poverty and greater hardship in the current cost of living crisis,” it said. 

Chancellor Jeremy Hunt has made it a goal to encourage the over-50s back into the workplace.  

“We have recently committed £70m in back-to-work support for the over-50s including a new online Midlife MOT launched this week,” a spokesperson said. 

Photo Credits: Pexels

Richa Ved

Richa is a young Indian graduate from Warwick Business School, aspiring to find her niche in the media industry. She has a passion for writing and a keen interest in financial affairs. If you don’t find her working, she’s probably having a pizza (her favourite!) and a pint of beer somewhere.

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