Podcast Summary
Rising costs in April 2022: Despite increased taxes, energy bills, and living expenses, some individuals may offset costs with energy-saving gadgets and potential rental savings. Stay informed and adapt where possible.
April 2022 is proving to be a challenging month for personal finances, with numerous increases in taxes, energy bills, and other living expenses. Among the notable changes are the rise in National Insurance and dividend tax rates, which may lead to reduced disposable income for some individuals. However, there are also some positive developments, such as a potential decrease in the cost of renting compared to buying a house for the first time in 14 years. Additionally, there are energy-saving gadgets that can help offset the energy price hike. Despite the gloom, it's essential to remember that not everyone will be affected equally, and some individuals may even be able to weather these financial changes without significant difficulty. Overall, it's crucial to stay informed about these changes and consider ways to adapt and save money where possible.
National Insurance Changes: Better Take-Home Pay for Some, Confusion for All: Some lower earners will pay less National Insurance from July, but those earning above £50,000 will continue to pay more. The changes have caused confusion, especially during a cost of living crisis. People might accept higher taxes if they see the money being used effectively, but concerns about funding shortfalls persist.
The recent change in the National Insurance budget has caused confusion for many people due to the increase in contributions followed by a decrease later in the year. However, for lower earners, the change ultimately results in better take-home pay. For instance, someone earning £20,000 will pay less National Insurance from July. On the other hand, those earning above £50,000 will continue to pay more. Despite the confusion, many people might be willing to pay extra taxes if they see the money being used effectively, such as for social care. However, there are concerns about the timing of the changes, as the country is currently facing a cost of living crisis. Additionally, the government's plan to introduce a health and social care levy in 2023 while reducing National Insurance rates back to their previous levels raises questions about potential shortfalls in funding for benefits and state pensions. Overall, the situation is complex, and it remains to be seen how the changes will play out in practice.
Impact of Dividend Tax Rates on Middle to Higher Income Individuals: New dividend tax rates will cost middle to higher earners an extra 1.3 billion pounds annually, with rates of 8.75%, 33.75%, and 39.35% for basic, higher, and additional rate taxpayers respectively. This can be a substantial financial burden for those who invest in companies and receive dividends, especially since the allowance was reduced to £2,000 in 2018.
The recent changes to dividend tax rates will significantly impact middle to higher earning individuals, costing them an additional 1.3 billion pounds annually. The new tax rates are 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers, and 39.35% for additional rate taxpayers. This tax on dividends can be a substantial financial burden for those who invest in companies and receive dividends, especially since the allowance was reduced from £5,000 to £2,000 in 2018. The government argues that many people are investing through their Individual Savings Accounts (ISAs) with a generous tax wrapper of £20,000, but this may not be enough for some. The state pension, which has risen by 3.1% this year, is also a concern, as inflation is currently running high and may lead to further increases in living costs for pensioners. The government faces a significant challenge in balancing the need to provide adequate pensions for those who have paid into the system with the rising costs of inflation and national debt.
New UK divorce rules make process quicker and cheaper: New UK divorce rules enable quicker, cheaper, and more straightforward divorces within 6 months, but seeking professional help for complex financial situations is advised.
The UK has introduced new no-fault divorce rules, which aim to make the process quicker, cheaper, and more straightforward. This is a significant change that has been long-awaited and could benefit many couples. The new rules mean that divorces must be completed within six months of the initial application, even if one partner is opposed. The process will be largely online, and divorce papers can be served by email. This should bring down the cost of divorce substantially, but it could also lead to financial mistakes if the process is rushed and there are complex financial matters involved. Therefore, it's still advisable to seek professional help for divorces with significant assets or complicated financial situations. This is a major shift in divorce proceedings, bringing them into the 21st century and making the process more accessible to more people.
Renting to be Cheaper than Mortgages for First Time in 14 Years: From 2023, the cost of renting may be lower than getting a mortgage for the first time since 2008. However, this trend could lead to financial strain for those in high-rent areas.
The cost of renting is set to become cheaper than getting a mortgage for the first time in 14 years. This trend, according to new research, could signal potential trouble ahead as it was during a similar period that the last housing market crisis occurred. From around 2004 to 2008, mortgages were more expensive than renting. However, since the financial crisis in 2008, renting has been the more expensive option due to low mortgage rates. Now, with house prices increasing and mortgage rates rising, owning a home on a monthly payment basis is projected to surpass renting. While this may be good news for some, it could lead to increased financial strain for others, particularly those in high-rent areas like London. It's important to note that this is an average figure and the cost of renting in certain areas can be significantly higher.
Mortgage rates may soon reverse the trend of home buying being cheaper than renting: Homeowners could face financial strain if mortgage rates rise, particularly those with large mortgages, and this trend could signal an upcoming recession
While buying a home may currently be cheaper than renting due to historically low mortgage rates, this trend may soon reverse as mortgage rates are expected to rise. This could lead to financial strain for homeowners, particularly those who have recently purchased homes with larger mortgages due to rising house prices. This economic research suggests that this trend could be a precursor to a potential recession, as was the case in the late 1970s, 1980s, and before the financial crisis in the late 1990s. Homeowners should be aware of this possibility and consider their long-term financial plans accordingly. Additionally, the current economic climate, including rising house prices and potential base rate rises, adds uncertainty to the housing market.
Homeowners trapped as mortgage rates rise: High earners who bought homes during pandemic could become 'mortgage prisoners' due to affordability tests and rising living costs
High earning homeowners who bought homes during the pandemic boom may find themselves trapped and unable to move or remortgage due to rising mortgage rates and increased living costs. These homeowners, who may have skipped steps on the property ladder during the stamp duty holiday and low mortgage rates, could now face affordability tests that take into account the cost of living crisis and other financial pressures. As a result, they could end up as "mortgage prisoners," stuck on their lender's standard variable rate, which is significantly higher than their current mortgage rate. This situation, typically associated with interest-only mortgages, highlights the importance of buying a home that can be improved or afforded with current and projected income levels. The upcoming earnings season, starting next week, will provide insights into how companies are faring amidst these economic pressures.
Struggling to remortgage or keep up with costs: Homeowners and businesses may face challenges due to tax increases, inflation, and lender affordability changes, potentially impacting the housing market and economy.
Homeowners and business owners, particularly those who have stretched themselves financially, may struggle to remortgage or keep up with rising costs due to a combination of tax increases, inflation, and potential lender affordability changes. This could lead to a ripple effect on the housing market and the economy as a whole. The stories of rising mortgage rates and house prices serve as warning bells for potential financial challenges ahead. Despite the current red-hot market with demand outpacing supply, it's essential for individuals and businesses to prepare for the potential headwinds and adjust their financial strategies accordingly.
Simple ways to save energy and money: Boil water once daily, upgrade old radiator valves, switch to LED bulbs for significant energy savings and cost reductions.
There are simple and effective ways to reduce energy consumption and save money on utility bills. One such method is optimizing the use of a kettle by boiling water once a day and storing it in a thermos flask for multiple cups of tea. Another method is upgrading old radiator valves with smart, energy-saving alternatives like the Robo radiator valve, which can learn your heating habits and adjust accordingly. Additionally, switching to LED bulbs, which use 85% less energy than traditional bulbs, can lead to significant savings. These are just a few of the interesting energy-saving tips that have gained popularity recently. Installing at least five Robo radiator valves could save up to £300 a year, while replacing all traditional bulbs with LED bulbs could save around £286 a year. These small changes can add up to substantial savings over time.
Energy-efficient home upgrades: Save money on utility bills: Investing in energy-efficient home upgrades like eco shower heads and smart thermostats can lead to significant savings on annual utility bills, but consider potential repair costs and longevity before purchasing.
Investing in energy-efficient home upgrades, such as an eco shower head and a smart thermostat, can lead to significant savings on your annual utility bills. For instance, an eco shower head uses 60% less water than a traditional one, potentially saving you up to £160 per year for a family of four. A smart thermostat, on the other hand, allows you to control your home's temperature remotely, helping you save on heating costs. However, it's essential to consider the potential hassle and cost of repairs or replacements if these devices malfunction. The annual savings might not cover the total outlay if the gadgets break down soon after purchase. In my personal experience, a smart thermostat stopped functioning properly and required professional replacement, resulting in additional expenses and inconvenience. So, while these energy-saving home upgrades offer substantial benefits, it's crucial to factor in potential repair costs and the longevity of the devices when evaluating their overall value.
Simple ways to save energy and money at home: Use energy-saving devices, unplug appliances, use an Ecoegg in the washing machine, replace showerheads with LED bulbs, and use a robot radiator to save energy and money.
There are simple ways to reduce energy consumption and save money on household expenses, such as using energy-saving devices and appliances. For instance, unplugging appliances when not in use can prevent them from acting as "energy vampires," while using an Ecoegg in the washing machine can reduce tumble dryer time by 28% and save up to £20 on electricity bills. Although some home improvements, like replacing showerheads, may not be feasible for renters, other options like using LED bulbs and a robot radiator can lead to significant energy savings. Overall, making small changes in energy usage can lead to substantial savings and contribute to a more sustainable household.
Helen's cost-effective heating solution: Helen recommends a plug-in electric heater for cost-effective heating, but advises checking energy usage readings for accurate billing.
Helen discovered a cost-effective heating solution by using a plug-in electric heater, which she described as a "throne" that she uses all the time and highly recommends at £50 from Argos. However, she later learned that her energy usage readings might have been incorrect, and she may be underpaying her energy bills. To ensure accurate billing, she plans to install a robo radiator valve. While the plug-in heater has been efficient for her, it's important to note that energy bills can be unpredictable, and regular checks and adjustments are necessary. Listeners can keep up with the latest money news and reach out with any questions or comments by visiting thisismoney.co.uk or downloading the app. Additionally, eToro is an investment platform where people can invest in stocks, share ideas, and strategies, not a social network as previously mentioned.
