Understanding Inflation
Inflation is a key economic factor that affects almost every aspect of our daily lives, and recent figures reveal some concerning inflation rises. According to the Office for National Statistics (ONS), household costs in the UK rose by 2.8% in the year to December 2024, up from 2% in September. As a result, many households are feeling the pinch, with certain groups seeing even higher increases in their living expenses. This increase is attributed to rising rental payments, mortgage costs, and utility prices.
The Impact of Inflation Rises on Households
Inflation’s effects are not felt equally across all demographics. The rise in household costs in 2024 has been particularly harsh for certain groups, including renters and homeowners with large mortgages. According to the ONS, private renters saw the highest inflation rate, with an annual increase of 3.9%, largely driven by escalating rental payments. This is a significant burden for many renters, particularly as they often have less disposable income compared to homeowners.
For those with mortgages, the inflation rate was slightly lower, at 3.1%. However, this still represents a notable increase, especially for individuals who may already be struggling with high loan amounts. Homeowners who are outright owners, on the other hand, faced the lowest inflation rate, at 2.1%. This is because they do not have to contend with rising mortgage payments, which are increasingly becoming a major contributor to household cost increases.
According to Sarah Coles, head of personal finance at Hargreaves Lansdown, wealthier households are better positioned to cope with rising costs, as they tend to have more financial flexibility. However, those on lower incomes or with high housing costs are finding it more difficult to manage the inflation rises.
What is the Cause of Rising Rental Prices?
Higher rental prices in Northern Ireland are being driven by a combination of factors:
1. Increased Demand for Rental Properties
As we face a chronic housing shortage, demand for rental properties has remained high. This is especially true in cities like London, Manchester, and Belfast, where a significant portion of the population rent due to high property prices. The limited supply of homes for rent combined with a high demand naturally pushes prices upward.
2. Rising Mortgage Rates
Higher mortgage rates have made it more expensive for property investors to purchase homes. As a result, many landlords are facing increased costs in financing their properties, and these costs are often passed on to tenants in the form of higher rent. With mortgage rates rising due to inflation and monetary policy tightening by the Bank of England, rental prices have escalated as landlords adjust to their higher financial obligations.
3. Reduced Housing Supply
The UK has faced a long-term housing crisis, and recent years have only worsened the crisis, with fewer new homes being built, due to high construction costs, labour shortages and planning restrictions. Additionally more landlords have been selling rental properties due to increased tax burdens and regulatory changes. So where supply is low and demand is high, rental prices increase.
4. Legislative and Regulatory Changes
Changes in laws and regulations, such as the phasing out of tax relief on mortgage interest for landlords and stricter regulations around renting properties, have increased the financial burden on landlords. To mitigate these increased costs, many landlords have raised their rents. For example, the introduction of stricter energy efficiency standards for rental properties means that landlords need to invest more in property upgrades, which again could be reflected in higher rents.
5. Inflation Rises and Increased Living Costs
Inflationary pressures in the UK economy also impact rental prices. As overall household costs rise, including utilities, food, and transport, so have property maintenance and service charges, including costs for repairs causing landlords to raise rents to cover their increased operational costs.
6. Limited Availability of Affordable Housing
The availability of affordable housing has significantly diminished over the past decade. The government’s failure to provide enough affordable housing and the growing gap between wages and housing prices has forced many individuals into the rental market. With fewer affordable homes, more people are turning to private rentals, which increases competition and ultimately rent.
7. Short-Term Rentals
The growth of short-term rental platforms like Airbnb has had an indirect impact on long-term rental markets. Many landlords have opted to let their properties on short-term rental platforms for higher returns, reducing the number of available long-term rental properties. This pushes up rental prices for those seeking long-term accommodation.
How Inflation Rises Affects Mortgage and Rent Prices
Rising Mortgage Rates and Housing Costs
One of the most significant contributors to the rise in inflation for homeowners has been the higher mortgage rates. For homeowners with a mortgage, the inflation rate reached 3.1%, which is largely due to the increased cost of borrowing. Higher mortgage payments are now a harsh reality for many homeowners, particularly those with larger loans. Homeowners with large homes and significant mortgages are feeling the strain more acutely. As mortgage rates rise, these individuals may face higher monthly payments, making it more difficult to manage other household expenses.
How You Can Ease Inflation Pressures
Those with mortgages may benefit from exploring remortgaging options to secure a lower interest rate or more favorable loan terms. Additionally, brokers can offer guidance on the various government schemes and support available to help homeowners reduce their costs.
For renters, mortgage brokers can advise on the potential benefits of buying a home, particularly if rental prices continue to rise. Understanding the housing market, particularly in Belfast, is crucial to making informed decisions.
The latest inflation rises reveals a challenging financial environment for UK households, with varying levels of impact based on income and housing situation. As inflation rises, mortgage brokers in Belfast can provide invaluable support by offering advice on mortgage options, remortgaging opportunities, and strategies for managing rising housing costs.
