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Smart Money People x Marshmallow: What UK newcomers need to know about the cost of living crisis

We sit down with Jacqueline Dewey, the CEO of Smart Money People, to find out what newcomers need to know about the current cost of living crisis. 

Jacqueline talks through Smart Money People’s latest research into the cost of living, and what it means for people who’ve moved to the UK. She also shares handy tools to save money and get support. 

Can you explain the current cost of living crisis for people who are new to the UK?

The cost of living crisis in the UK refers to the difficulty many are facing to be able to afford necessities like food, utilities and fuel. It’s a complex issue with many underlying factors, including rising inflation, the economic impact of the COVID-19 pandemic, Russia's invasion of Ukraine and Brexit.

In October 2022, the annual rate of inflation reached 11.1%, making it a 41-year high. The rate has eased in 2023, but it remains very high.

When the cost of living rises but incomes don't keep up, many may struggle to make ends. This can lead to a vicious cycle of poor financial health. While there have been some efforts to address this crisis, such as increasing the minimum wage and government support programs, many people living in the UK continue to struggle with the high cost of living.

Our research revealed that five and a half million people across the UK plan to borrow in order to cover day-to-day expenses, and one in ten plan to borrow money to consolidate existing debts.

Is it something that people need to be worried about when considering their move to the UK?

The cost of living crisis may be a concern for people thinking about moving to the UK. Newcomers may find it challenging to afford a decent standard of living due to the high cost of basic necessities.

It's important for anyone considering a move to the UK to carefully research the cost of living in the area they plan to relocate to. The cost of housing and daily expenses can significantly vary depending on the area you choose to settle in. As interest rates have increased recently, rent and mortgage payments have also increased.

Are there particular areas of the UK that are more impacted by the cost of living crisis than others?

In our Smart Money People research 71% of people said that the current rise in cost of living (rising prices for fuel, energy and food) has meant that the amount of disposable income they would usually be able to spend in an average month is lower. People in the East of England are feeling the effects even more, where 78% said they’d have less disposable income.

Our research also revealed that in terms of cities, the most affected were Sheffield, Birmingham, Liverpool, Edinburgh, Leeds, Newcastle and Norwich.

It's important to keep in mind that the cost of housing in London is considerably high, so it might be worth exploring alternative locations in the UK depending on your budget.

How has the rental market been impacted by the cost of living crisis?

63% of people said that the current rise in the cost of living has meant that the amount of money they would usually be able to put in savings in an average month is lower. This will no doubt have an impact on prospective homeowners trying to save for a house deposit. This, along with the instability of the mortgage market, has led to a decline in first-time buyers. And this means when combined with other factors there's an increase in the demand for rental properties. As a consequence, rental prices have increased.

Rising interest rates have also pushed up the cost of mortgages leaving many with monthly outgoings that they cannot afford. This has then forced many landlords to increase the monthly rent for their properties.

How will rising interest rates in the UK affect people who are both new to the UK and have been living here for a while?

Rising interest rates in the UK will impact both new and established expats living in the UK. However, the impact of rising interest rates in the UK will depend on each individual's circumstances. Here are some of the areas it may affect newcomers:

  • If you’re transferring money to your home country

The value of the UK currency can change. When inflation is very high it’s likely to impact the country's exchange rates with other nations negatively. It’s worth considering this if you’ll need to transfer money to and from your home country.

  • If you’re saving money

If you have a savings account, the interest rate tells you how much additional money will be paid into your account, as a percentage of your savings. The higher the percentage, the more money is paid into your account.

In theory, an interest rate rise should lead to higher interest on savings accounts. However, not all bank rates are responding to the bank rate rise and are offering low rates on savings accounts. So now that interest rates are rising, you should shop around to make sure you’re getting the most out of your money.

Our Smart Money People community has been sharing their honest experiences, so you can shop with confidence. Read savings reviews from real people, so you can make a more informed choice when choosing the best financial product for you.

  • If you’re borrowing money

If you’re planning on taking out a loan, the interest rate is the amount you are charged for borrowing money, shown as a percentage of the total amount of the loan. The higher the percentage, the more you have to pay back.

If you agree to a fixed rate of interest when you take out a personal loan, such as finance to buy a car, it won’t change during the fixed period.

  • If you have a mortgage

Unless you’ve opted for a fixed-rate mortgage it's likely your rates will change depending on the interest rate. Your monthly mortgage payments are likely to increase when the bank rate increases. If you currently have or opt for a fixed-rate mortgage, nothing will change during the fixed period.

Mortgage rates are based on a number of different factors, not just the bank rate.

  • How do interest rates affect the cost of living?

When interest rates are high, demand might fall as people put more money into their savings pots if they can afford it. This, in theory, should drive down the prices of goods and services. However, price changes are not a direct result of interest rate changes. Other things affect the cost of living such as energy, fuel and food costs. The cost of living is measured by inflation, not interest rates.

How can people save money when moving to the UK? Do you have any money-saving tips you can share?

If you struggle to put money aside, auto-saving apps like Chip, Plum and Moneybox can round up your purchases or syphon off small amounts of cash. Automating your savings eliminates the need for you to manually transfer money to a savings account each month. This reduces the temptation to spend the money that you intend to save.

Cashback apps like Topcashback and Quidco will allow you to build a pot of cashback when you make regular purchases. Cashback credit cards can also be a great way to earn rewards for everyday spending, but it's important to choose a card that fits your spending habits and to use it responsibly. Sometimes it's possible to use cashback in conjunction with discount codes and using both can maximize your savings and help you get the best possible deal on your purchases.

And can you recommend any apps or websites that can help people manage their budgets?

Personal finance and budgeting apps like Snoop, Emma, and Money Dashboard can help people manage their money and improve their financial health. They include handy features like budget tracking, bill reminders, and savings goals. The apps also provide personalised insights so you can monitor your spending habits and identify areas where you can save money.

Moving to a new country is stressful enough without worrying about the cost of living. Where can people go for support if they need it?

If you’re struggling with the cost of living in the UK, there are plenty of free resources available that can help you get back on track.

Citizens Advice is a UK-based network of independent charities that provides free, confidential, and impartial advice to people on a range of issues including financial matters. They provide face-to-face advice, as well as telephone and online support, providing tools and resources to help you manage your money.

A big thanks to Jacqueline for all her helpful answers. Head over to the Smart Money People blog to discover more support and help available in the UK.