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The latest Consumer Price Index (CPI) shows that inflation is now running at 5.4%. This figure is the highest the UK has seen for 30 years and paints a bleak picture for those already struggling with the rising cost of living. 

So if you’re feeling the pinch, it’s worth understanding that there are steps you can take to lessen the impact on your wallet. Here’s what you need to know.

What’s the current situation with inflation in the UK?

The UK’s inflation rate rocketed in the second half of 2021. In August, the CPI stood at 3.2%, comfortably above the government’s 2% annual inflation target. By September, it had decreased slightly to 3.1%, before skyrocketing to 4.2% by October and 5.1% by November.

The latest December 2021 figure shows that prices are now rising by a whopping 5.4% year on year.

Rising inflation is bad news as it means the value of money is shrinking. This could be a big problem if you don’t secure a pay rise at least in line with inflation. 

What’s driving the UK’s high inflation rate?

According to the ONS, rising prices of food, non-alcoholic beverages, restaurants and hotels had the biggest upward contribution to its latest inflationary report.

The ONS also reported that rising costs of furniture, household goods and clothing were other big contributors.

While these are all important factors, it’s also worth looking at the bigger picture when it comes to understanding the reasons behind the UK’s rising inflation rate.

For example, to date, the Bank of England has bought £875 billion worth of UK government bonds. This process of ‘quantitative easing‘ – also known as ‘printing money’ – was undertaken to support the economy during the first waves of the pandemic. While the benefits of QE are debatable, increasing the UK’s money supply has undoubtedly had an impact on the UK’s high inflation rate.

On a similar note, the Bank of England’s base rate was just 0.1% for most of 2021. This too is likely to have contributed to the high inflation we are experiencing today.

How can you lessen the impact of rising prices?

National Insurance and share dividend tax will both rise later this year. That’s because National Insurance will increase by 1.25p in the pound from April, while share dividend tax will increase 1.25%.

Energy costs will go up too. That’s because Ofgem’s energy price cap will likely skyrocket when it is next reviewed in April. Currently, the price cap limits what energy suppliers can charge customers, and this is currently lower than the wholesale cost of energy.

Aside from these rises, it’s also possible that general inflation will continue to accelerate throughout 2022. While some rising costs are unavoidable, the following three tips can help to shield your finances.

1. Ensure you get the highest interest rate on your savings

It’s a fact that savings rates don’t pay anything close to the current rate of inflation. Yet some interest is better than nothing (or the 0.01% shamelessly offered by some big-name banks).

Right now, you can earn 0.72% AER variable in an easy access savings account. Or, if you’re happy to lock away cash, you can earn up to 2.1% in a fixed savings account.

2. Keep a close eye on your energy provider

Wholesale energy costs have soared over the past few months, and some analysts expect the government’s price cap to increase by over 50% in April.

While ‘do nothing’ has been a popular strategy, given that default tariffs are limited by the price cap, some providers are now offering customers the opportunity to fix costs.

While prices on these fixed deals are higher than current costs, if energy continues to rise after the price cap is raised, then it’s possible that customers could be better off in the long term by fixing now.

As a rule of thumb, if you’re offered a fixed deal that’s no more than 35% more expensive than your current price-capped tariff, you should consider switching. In other words, do the sums and weigh up the risks.

3. Be smart with share dividend tax

Share dividend tax will increase by 1.25% from April. Yet if you’re smart, you can avoid this tax. That’s because it doesn’t apply to investments held within a Stocks and Shares ISA.

For more on this, see our article that explains how to avoid the share dividend tax.

Please note that tax treatment depends on your individual circumstances and may be subject to change in the future. The content in this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

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Some offers on The Motley Fool UK site are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.

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With house prices continuing to rise, the prospect of owning a home is a distant dream for many. However, renting from a private landlord isn’t the only alternative to buying a house. In fact, thinking out of the box could help you save enough for a deposit on your own home.

Renting from a private landlord is expensive and insecure. In addition, there are restrictions on how you live your life. You don’t get to choose the décor, you probably won’t be allowed to keep pets, and there are regular inspections. It’s not surprising many people are anxious to escape private renting, despite high house prices.

If you’ve had enough of the rent trap, some types of accommodation can provide a substitute, or a stepping stone, to owning your own home. 

A home without paying high house prices

If house prices are well beyond your income, there are other long term options.

1. Rent a property on a country estate

Large landowners with stately homes often have properties available to rent on their estates. These are usually long term lets and therefore more secure and more like home. The properties might be on the grounds of the estate or in the local village. If you like country living, this is definitely an option to consider if a mortgage is out of reach due to high house prices.

The National Trust is one large landowner that rents out properties to tenants long term. However, bear in mind that the application process for these properties can be very competitive.

2. Lower house prices with shared ownership

You can purchase a property gradually through shared ownership. Starting with a share of just 10%, you pay rent on the rest. Then you gradually buy more shares when you can afford them. Many of the properties are new builds.

It’s still possible to sell your property if you want to move. The availability and terms and conditions are dependent on the area.

3. Live on a boat

Narrowboats are available to buy for a fraction of the price of a house or flat. You would have to be prepared for a different kind of lifestyle, but it’s a way to own your own home. An advantage of living on a narrowboat is that you can change your location whenever you feel like it. Council tax is very low, or non-existent if you keep moving every few weeks.

There are mooring fees to consider as an extra expense, which are particularly high in popular areas such as London. Boat prices are lower than house prices, but there is a lot to learn about boat life, including the cost of maintenance and insurance, before making a commitment. 

4. Rent from a housing association

Unfortunately, there are very long waiting lists for social housing. If you are in danger of being made homeless or otherwise vulnerable, you might be nearer the top of the queue. There’s no harm in putting your name down on the list, just in case.

It’s cheaper to rent from a housing association. If you are able to get this kind of property, there are different types of tenancy agreements, with some ensuring a tenancy for life.

Temporary alternatives to high house prices and rent 

Do you want to focus on saving money for a future purchase? Here are some short-term solutions.

5. Live with family or friends

Very few people are enthusiastic about living with their parents in adulthood. However, as a temporary measure, it can give you time to save up for a deposit. Sharing with a sibling or friend as a lodger is another solution that might be less expensive. 

If you can’t bear the thought of sharing accommodation with your family, perhaps they might let you park a caravan on their property while you save.

6. Find accommodation with work

There are lots of careers that come with accommodation, which is sometimes free. These include working on a farm, in a boarding school in the UK or elsewhere, or as a nanny or live-in carer.

If you like the idea of a Downton lifestyle, there are still employment opportunities with wealthy families, for single people and couples, that come with accommodation. 

7. House sitting 

Looking after someone else’s home and pets while they are on holiday is a cheap way to enjoy a new space for a while. House sitting provides you with homes for free while you save money. You could combine this with staying with friends or family to fill in the gaps. 

House prices by area

House prices may not be unaffordable for you in every area of the UK. Keeping your geographical options open might mean a shorter period of time renting and saving up.

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Some offers on The Motley Fool UK site are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.

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High street banks have long held a firm grip on the UK current accounts market. But a significant shift appears to be underway. New data shows that the big banks are being challenged by a growing force: digital challenger banks.

These online banks are gradually gaining a larger share of the current accounts market. But why is this happening? What advantages do these banks have over traditional banks? And should you think about switching to one of these banks? Let’s find out.

What are digital challenger banks?

As the name suggests, they are new online banks that essentially want to challenge the old world order. More specifically, they want to disrupt the dominance of the traditional big four banks: Barclays, Lloyds, HSBC and NatWest.

Digital challenger banks include the likes of Monzo, Revolut, Starling, Atom and Monese. The core characteristic of these banks is that they are unburdened by legacy systems and complex organisational structures.

Other unique features that set them apart from traditional banks include:

• Transparent and low fees
• Faster service
• An enhanced user experience through digital interfaces

Some of these digital banks specialise in certain areas or target customers who are underserved by the big banks.

Why are digital banks taking up a larger share of the UK current account market?

The Financial Conduct Authority (FCA) reports that there are currently 100 million current accounts in the UK.

Nearly one in 10 accounts (8%) are now held by new digital challenger banks. This is up from one in 100 (1%) in 2018. Moreover, over the same period, the big banks have gone from running 68% of current accounts to 64%.

So, why are high street banks losing their strong grip on the current accounts market?

Well, according to the FCA, it boils down to changing consumer behaviour and the acceleration of digitalisation. As the FCA points out, these factors have opened up the possibility of branchless banking, reducing the importance of large bank networks, which has traditionally given them an edge over newer digital banks.

The regulator goes on to add that digital challenger banks have been able to attract more customers in part “by offering innovative mobile apps which make the experience of banking easier and more convenient and help consumers manage their money“.

Should you consider switching to a digital bank?

This is, of course, a personal decision.

However, as Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, suggests, the big banks’ loosening grip on UK current accounts is “great news for those customers who are able to get a better deal”.

She continues, “Switching your current account doesn’t just offer the chance to find somewhere with lower fees or more attractive features. It also has the power to free you from the tyranny of the high street when it comes to saving and borrowing.”

What does this mean exactly? Well, as Coles explains, current accounts are vital to the way traditional banks operate. Apart from making them money, these accounts also give them a “captive audience” for their other products.

For instance, Hargreaves Lansdown research shows that 40% of people hold both their savings and current accounts at the same bank. A third usually go to their existing bank when they are planning to open a savings account. Among this latter group, half do not consider going anywhere else at all.

Unfortunately, this kind of blind loyalty means that many customers could be losing out on much better deals or solutions for their financial needs.

That is why it is always a good idea to shop around, not only for current accounts but also for other financial products commonly offered by banks, including loans, mortgages and credit cards. Shopping around remains the single best way to make sure you get the best possible deal for your needs.

Of course, before you make a bank account switch or even open a secondary account with another bank, make sure you read the terms and conditions to understand exactly what you are signing up for.

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Some offers on The Motley Fool UK site are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.

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New government data suggests that property sales in December 2021 were substantially higher than in the previous month.

But if you dig deeper into the stats, it’s possible to come to the conclusion that, in reality, the number of property sales may actually be declining. Here’s why.

What did the data reveal about the UK housing market?

According to HMRC, property sales were 11.8% higher in December than they were in November. Despite this, the number of sales was 14.6% lower than the same time in 2020.

HMRC also says December 2021 was officially the third busiest for property sales over the last 10 years.

Meanwhile, in no other year over the past decade have property sales been higher than in the current tax year. This is a remarkable statistic given the 2021/22 tax year still has more than two months left to run!

What can we read into these stats?

Alongside its report, HMRC points out that the huge 14.6% year-on-year decrease should be taken ‘with caution’. That’s because the higher number of sales reported in December 2020 was likely a result of the Stamp Duty holiday.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, echoes this point and considers the December 2021 figure as an outlier. She explains: “Property sales continued to bounce back in December, but there’s every chance this is a temporary blip.

“Over the previous two months, sales had been recovering from the lows of October, climbing slightly above the kind of levels we usually see in December. However, the lag in these figures means they reflect sentiment before talk of rate rises started in earnest, so this bounce isn’t guaranteed to take off.”

Coles also claims that the Stamp Duty holiday may have helped to skew the figures for December 2021 too. That’s because the tax cut wasn’t fully wound down until September last year.

“October was always going to be a real low because so many people hurried a sale through to take advantage of the tax break that finished at the end of September. The recovery in the two months to December sees a return to stronger levels of transactions.”

Coles goes on to highlight how HMRC’s figures refer to ‘completed transactions’. This means the data doesn’t really show the true number of sales. 

She explains: “… these figures measure completed transactions, so there’s a lag between people’s decision to buy and when they feed into these statistics – about two to three months later. We know that agreed sales have been dropping for months, so there’s a good chance this will manifest itself in lower completion numbers over the next few months.”

How can fewer property sales impact UK house prices?

Should we see fewer property transactions in 2022, there will be fewer homes on the market.

This will make it harder for buyers to find a property and likely help to increase house prices. As Sarah Coles explains: “The shortage of houses doesn’t just make it harder to buy, it’s also pushing prices up, with early indications from the commercial indices that prices hit a record high in December.

“[This situation] puts buyers in the miserable position of having to pay a huge premium for a home that they’ve had to settle for, which is going to put some of them off.”

Higher house prices won’t be welcomed by budding buyers of course. That’s because UK house prices are already at record levels.

According to the ONS’ latest housing index, the average home in the UK now costs £271,000. As a result, those hoping to get on (or move up) the property ladder this year will hope the number of properties for sale increases. If not, then 2022 could prove to be another nightmarish year for wannabe homeowners. 

Are you looking to buy a home? See The Motley Fool’s top-rated mortgage deals.

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Some offers on The Motley Fool UK site are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.

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It’s exciting to create New Year’s resolutions in every area of your life, including your finances. But if you’ve created personal finance goals and you feel like they’re already slipping through your fingers, don’t panic! 

I’m going to walk you through some simple ways that you can get things back on track. They’ll include some useful tips for staying motivated throughout the year without feeling stressed out.

5 finance tips to get your money habits back on track

Here are five unique tips from St. James’s Place Wealth Management for getting your 2022 financial goals back on the path to success.

1. Tackle finance worries head on

Understanding your situation and being able to plan will massively improve your financial wellbeing. Realistically, burying your head in the sand is the worst move possible.

If you need to straighten out your finances, take an honest look at the whole picture. Depending on your goals, some possible actions you can take include:

2. Open up about your finances

There used to be a silly notion that you shouldn’t discuss your finances. With so much to learn, going it alone is madness.

Use your network and speak to your partner, friends and family. It may also be worth sitting down with a qualified financial adviser for some professional guidance. It’s okay not to know everything about finance, but talking about your money worries will never leave you worse off.

3. Refer back to your New Year’s resolutions

Sometimes, life gets in the way of plans, and that’s fine. It can take months to build a successful habit like becoming a regular saver.

A great way to keep on track is to write down your money goals for 2022 and then check back on them every few months. This can help to keep you focused and motivated throughout the year.

4. Don’t forget about friends, family or those in need

Part of sorting out your finances may involve thinking of others and tasks such as estate planning. Acting ahead of time to create a proper life insurance policy or prepare for inheritance tax (IHT) could help those you care about most.

Whilst keeping on top of your own financial goals is great, make sure you try to help out anyone close to you who might be struggling. This doesn’t have to mean giving them money. You might just share some of the personal finance wisdom you’ve learned from The Motley Fool!

5. Use or lose your tax allowances

Thinking about taxes might send you to sleep, but it’s crucial to make the most of your allowances each year.

This simple fact is that doing this is going to result in you keeping more money in your pocket. So, make sure you organise your finances in the best way possible.

It could mean using a stocks and shares ISA account for your investments. Or perhaps just making the most of your pension allowances before the end of the tax year in April. Just remember to use all the tools you can throughout the year!

Please note that tax treatment depends on the specific circumstances of the individual and may be subject to change in the future.

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Some offers on The Motley Fool UK site are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.

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