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Home Business Is moving homes a good idea during high inflation?

Is moving homes a good idea during high inflation?

by uma
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By Rune Sovndahl, co-founders, Fantastic Services’ 

The UK is amidst 40-year-high inflation, and we can’t pretend it’s not affecting every single market. However, with rates which are barely below the two-digit values, it’s safe to say 2022 is definitely continuing the ’20s bad reputation. No one can say this was a huge surprise. Practically every single economist made it crystal clear that after the COVID lockdowns, there will be stagnation, and prices will go up. However, with Russia’s unprecedented aggression in Ukraine, things got even worse than predicted.

However, the real estate market miraculously is still very much hustling and bustling. The average house price has increased consecutively by 12.4% in April and 12.8% in May. These statistics show two things. First, people are trying to invest their money in property, so the inflation won’t bite off as harshly in their savings. Second, they want to finish their deals before the inevitable recession in the UK occurs.

But is it a good idea to move homes amidst this 40-year-high inflation?

What is inflation?

Before getting to its effects, let’s first clarify what inflation is, whether it is good or bad, and why it is so high. To put it simply, inflation is the rate at which our money loses its value. For example, if a loaf of bread costed £1 in August last year and this year in August, it costs £1,10, it means there is a 10% inflation on a yearly basis. However, looking just at bread or any single product won’t give us an accurate estimate of how much our money has lost its value. So usually, the government surveys 53,000 products that people are known to buy frequently, and by analysing them, they can determine the overall inflation rate. It’s a bit more complicated than that, as some additional variables are involved, but that’s the basic idea behind inflation. While inflation does mean we lose some of our money, it’s essential for the economy, so every government worldwide strives to have a 2-4% annual inflation rate. This is good for the economy, as money devalues due to consumption. Consumption means more production, which means more people are needed to work. Thus the unemployment levels drop, which leads to more competition for labourers, meaning better working conditions, and higher pay. The higher income means that people can afford to buy more, leading to certain products becoming more valuable, leading to inflation. Rinse and repeat.

Thus, a low inflation rate is healthy for the economy. However, when there is high inflation, the people’s income grows slower than the expanding prices, meaning there are fewer purchases, leading to less production and the whole cycle becomes backwards. Thus governments typically try to stimulate their citizens to either spend or save their money by lowering or raising the basic interest rate of banks. To fight the current high inflation, the Bank of England numerous times increased the basic interest rate, however, that doesn’t seem to stop people from spending. This phenomenon is due to the Corona lockdowns, which left everyone dreaming of the time when they can get back to normal. The saved money during that period is now spent at large, which drives the energy-price-driven inflation even higher.


How to deal with such high inflation

Dealing with this on a national level is a delicate matter which, thankfully, is in the hands of the government. That’s the point of living in a society. You can delegate issues that are outside your scope to more competent people. However, each and every one of us can take some action to salvage some of our savings. There are various ways to do this, and as usual, the best way to go for it is to make a mix. You need to keep some of your money in cash in cases of emergency. While it sounds lucrative to invest all your money into crypto, having some you can spend immediately is mandatory. That doesn’t mean that investment is a bad idea. While crypto is not the most secure investment plan, you should definitely mix one or two cryptocurrencies into your portfolio. Investing in stocks is a long-term commitment, which means you need to allocate only the amounts you won’t need in the next 5-10 years (at least).

Another chunk of your savings should be exchanged into foreign currencies. Naturally, you need to do some research in choosing the ones that are most stable at the moment, but the Swiss franc and the Norwegian Krone are among the most stable currencies not only in Europe but in the entire world.

Precious metals should also be part of your savings mix. Gold has been around for millennia, never going out of fashion, so it’s doubtful it will lose its appeal right now. Silver, platinum, and copper are all great choices for investments. Having some of these precious metals physically is also not a bad idea.

Investing in property is also one of the best ways to keep your money from devaluing, as property prices usually rise higher than inflation rates. However, is it a good idea to move homes during a period with extremely high inflation?

Moving homes during high inflation

While the government does look at 53,000 products to determine the inflation, none of them is linked to the housing market, as buying a home is not really something that people frequently do. Actually, a survey made by Fantastic Services has shown that over 43% of people haven’t moved homes in the last 10 years. This means that real estate prices can go down while the inflation rate is at a record high. Currently, this is not the case in the UK, as prices have risen even higher than the inflation rates for April and May and slightly below in June. However, experts predict that real estate prices will go down during autumn, as the bank of England will once again raise interest rates. This will make taking a mortgage a bit harder, as higher inflation means you can end up paying higher interest rates than your budget can afford. However, if you are planning your first house, you have this bump in the budget and a secure job, it’s probably best to wait until the prices go down and invest in a new home. Remember that paying a mortgage is much like paying rent, but you receive a tiny piece of the house with each payment.

Whereas if you pay rent, you only enlarge your landlord’s activities.

Getting a loan, however, might prove a bit trickier, as banks are usually cautious during uncertain times such as the one we have now. While they account for the upcoming interest rate rise, they are still very careful to whom they give up loans. Still, if you have the budget for it and all your documents are in order, most lenders will gladly sign the papers.

On the other hand, if you already have a home, which you are planning on selling and moving to a new one, it’s probably best to wait until these uncertain times are over. If you are upgrading, you might sell your home now for a reasonable price and wait until prices go down to buy yourself something better, but that’s too much of a risk. The inflation will bite off a piece of the money quite fast, and you will still need a mortgage and to pay rent somewhere until you buy yourself the new home.

If you are downgrading, once again, you need to consider the high inflation and the upcoming recession. The money you will receive will probably just evaporate due to higher energy bills and unstable inflation, so it’s better to hold on for better times.

So is it a good idea to move homes during high inflation

The answer, as usual, is “it depends”. If you are buying your first home, and this means you will be paying a mortgage instead of rent, then by all means – go for it. However, make sure to do a thorough budget and ensure you have the financial stability to cover all unforeseen problems that the higher inflation and the rising interest rates may bring. On the other hand, if you already have a home and you just want to move to a bigger or smaller one, it’s probably better to wait for the storm to pass.