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Inflation hits 9.4% presenting challenges for borrowers and “a catastrophe for savers” – reaction from IFAs, brokers and money coaches

Following this morning’s inflation data, IFAs, brokers, and money coaches have reacted to its impact on savers and borrowers.

Nick Lincoln, director at Watford-based Values to Vision Financial Planning: For savers, high inflation and low-interest rates are a disaster. As ever, cash is proving to be the riskiest investment of all, guaranteeing a negative return in real terms. Its purchasing power evaporates. One asset class gives investors a chance to protect against inflation: equities. In times of high inflation, companies can increase their prices and thus their earnings, the historic driver of share prices. Over the long term, equities are a no-brainer.

“Sadly, when it comes to money and comprehending where the real risks lie, many people make mistakes, hence the clamour for the safety of cash, gold or some ghastly new kid on the block, like crypto or NFTs. ​Inflation hitting 9.4% is great news for those who borrow, as inflation effectively wipes away the real value of debt. So homeowners should rejoice, especially as interest rates are still very low compared to the current high level of inflation.”

Graham Wells, financial coach at Haddington-based GroWiser Financial Coaching“For savers, the current level of inflation is a catastrophe. The spending power of money in the bank is being eroded pretty quickly now. That’s just something we have to accept for short-term savings and emergency funds, but for long-term investing, we must all look beyond the perceived ‘safety’ of bank deposits. If you’ve never really thought much about investing, or if you’ve avoided it because it sounds risky, now could be the time to invest in your future through financial coaching or financial advice. 

“With inflation continuing to rise, the likelihood of interest rates going up also continues to rise. Perhaps August could see a 0.5% increase in the Bank of England base rate. On the one hand, high inflation is actually a hidden benefit to borrowers because it erodes the value of debt over time. £100,000 of debt now falls to just £77,633 in real terms, if inflation remains constant at just 2.5% over 10 years. On the other hand, interest payments become more expensive unless you’re locked into a fixed rate deal. So if you’re on a variable rate or if your fixed rate is coming to an end soon, it’s time to review your options with a good mortgage broker.”

Rhys Schofield, managing director at Belper-based Peak Money: Savers may as well keep their money under the mattress as leaving it in a low interest yielding bank account simply erodes the value. Speak to a financial adviser and invest, as it’s the only way to keep up with inflation. For borrowers, inflation is eroding the true value of their debt and what they owe although clearly the cost of borrowing is going up. Saying that, mortgage rates still tend to be significantly lower than the current rate of inflation. It doesn’t matter who you are though: the cost of living crisis for normal people is starting to hurt and it’s going to get worse before it gets better.”

Dominik Lipnicki, director of Your Mortgage Decisions: The rise in inflation to 9.4% is yet another blow to mortgage borrowers as it places even more pressure on the Bank of England to go further in raising their base rate, with some now expecting a 0.5% increase. We have already seen sizeable rises in mortgage rates and this will be a worry for anyone coming to the end of their fixed rate. Few believe that raising rates will have much of an impact on inflation, as outside factors such as energy prices and the war in Ukraine are largely to blame. The Government needs to do more, much more.”

Andrew Montlake, managing director of the UK-wide mortgage broker, Coreco“Inflation rising to 9.4% means rates are almost certainly going up again, potentially by 0.5% in August. The need for borrowers to proactively assess their mortgage situation has never been more important. Mortgage rates are rising by the day and borrowers approaching the end of their fixed rates need to seek advice ASAP.”

Lewis Shaw, founder of Mansfield-based Shaw Financial Services: Inflation continuing to rise makes the Bank of England raising the base rate by 0.5% in August much more likely. This would be the largest base rate rise since 1995. A growing number of people with a mortgage are considering consolidating their personal balance sheet and extending their terms to free up more disposable income as food, fuel and mortgage rates rise. Of course, people need to seek advice from their broker before doing this.”

Adrian Murphy, CEO at Glasgow-based wealth manager, Murphy Wealth: “Arguing that equities are less risky than savings right now falls into the common trap of analysing two products that are not comparable. Equities are a long-term strategy to increase the overall value of the amount invested. Savings are a short-term pot of cash that can be easily accessed. With two completely different uses, it is near impossible to compare the risks associated with the products, as each risk is specific to the holder.

“Someone who needs to access a pot of capital in one month to buy their dream home will see the risks of equities as significantly higher than a savings account. That same person looking to build wealth for their retirement in 20 years’ time will see the inflationary risks of savings as significantly higher than holding equities. Arguing that equities are less risky than savings is the age old practice of trying to compare apples and oranges.”

Joshua Gerstler, chartered financial planner at Borehamwood-based The Orchard Practice“For a whole generation, this is the first time that we have seen inflation at these levels. Whilst we continually tell those we look after that inflation is one of the biggest threats to their long term wealth, people are now seeing with their own eyes for the very first time that it is indeed the case. Only money needed for upcoming expenditure and emergencies should be held in savings accounts for the long-term. Everything else should be invested, mainly in equities, to benefit from the continued advancement of the great businesses of this world, to be able to share in their profits.”

Maddy Alexander-Grout, CEO of Southampton-based My VIP Rewards: The current level of inflation is not just seeing negative real returns for savers, but means they have less to save full stop because food and petrol prices are going through the roof. It’s a double whammy of pain and the only thing that’s certain is that it’s going to be a difficult end to the year for millions of people.”

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