Six predictions for 2022

With the end of 2021 fast-approaching, it’s time to look to the new year.

While no-one has a crystal ball, here’s a look at what might happen in 2022 – and what you can do to navigate these changes, so you can stay on top of your finances.  

1. Cost of living will go up

The latest inflation figures show inflation now stands at 5.1%, and there is speculation it could maybe peak even higher, with higher energy prices continuing to play a part.

As rising inflation means a squeeze in the cost of living, this can put pressure on household budgets, and especially if the purchasing power of wages doesn’t keep pace.

High inflation also has an erosive effect on cash savings. For more about inflation, head here.

What can I do?

• take steps to make savings on outgoings such as broadband, mobile phone, car insurance and home insurance
• cancel subscriptions for goods or services you no longer need or use
• make use of deals and offers when food shopping, or try shifting to cheaper brands
• make sure your savings are on the highest rates you can find. You can compare rates here
• think about investing, perhaps in a stocks-and-shares ISA. But make sure you understand what you’re getting into as the value of an investment may go down as well as up. Only invest if you can do so for the longer term

2. Energy bills could shoot up

In April, there’s a good chance your energy bill is going to rise significantly. The energy price cap, currently £1,277, will be reviewed in February, and an announcement will be made at that time. The new price cap will then kick in from April 1.

Given the huge rises in wholesale prices, the cap is almost certainly going to rise quite steeply.

As an energy customer, your annual bill could rise by hundreds of pounds.

What can I do?

• in more ‘normal’ times, the best way to beat rising energy prices would be to switch. But right now, our advice is to stay put, as at present, you can’t make savings by moving. We’ll be sure to let you know as soon as that guidance changes
• in the meantime, you can save on energy bills by taking steps to be more energy-efficient. Simple steps include switching to LED bulbs, turning your thermostat down by one degree, and switching appliances off standby. For more tips, visit the https://energysavingtrust.org.uk/.
• make sure you claim all the help you are eligible for

3. Changes to the ‘loyalty penalty’ for home and motor customers

From February, insurers will no longer be able to charge existing customers more than new ones when they renew. Once you receive a renewal quote, your insurer will have to offer you the same deal that they would give to new customers. This should put an end to the current situation where existing customers face price hikes at renewal time each year, meaning policies get more expensive.

• while things should improve for those who stick with the same provider, it’s still worth shopping around for home insurance and car insurance at renewal time to ensure you get the best policy for your needs – at the best price
• it’s also worth checking how competitive your policies are now, ahead of the changes

4.Further increases in the base rate

The Bank of England surprised a lot of people when it raised the base rate from its historic low of 0.1% up to 0.25% at the last meeting in mid-December. 

As the aim is to try and ease inflationary pressures, this is unlikely to be the last of the rises.

That said, we are also unlikely to see eye-watering overnight hikes; it’s more likely that rises will be slow and steady.

If rates do continue to rise, this will make it more expensive to borrow money, but it should also mean improved returns for savers - albeit changes for savers could take some time.

What can I do?

• pay down debts
• overpay your mortgage while rates are low
• move debts such as cards and loans to the cheapest rates you can find. This is likely to be a competitive 0% balance transfer card or a low-rate loan
• review your mortgage. If you’re on a variable-rate deal, it’s worth considering fixing now. Mortgage rates have already started to rise, so you need to act sooner rather than later to bag the very best deals
• as a saver, move your money to the highest-paying account you can find. Higher-rates tend to be available on fixed-rate bonds, rather than easy-access accounts.
• if you are considering a fix, you may be wondering whether to take a wait-and-see attitude, putting off opening a bond until rates are higher. But if you do this, you risk missing out now. To compare savings deals, head here.

5. You will pay more tax

The Chancellor has announced a host of new initiatives to get the nation’s finances back on track, including ‘growth’ ambitions as well as some increases in taxes and National Insurance.

From April, NI contributions will increase by 1.25% for employees, employers and the self-employed.

While it’s hoped these will start things moving in the right direction, we could see more changes, potentially in a Spring Budget.

6. It will be a less busy year for property

The past year has seen record levels of activity in the housing market, with the stamp duty holiday having a big part to play, along with cheap mortgage rates.

Looking ahead to 2022, without this tax break spurring activity, we are likely to see fewer properties up for sale, and a lower number of mortgages being agreed.

While it’s hard to predict what will happen to house prices, the most likely outcome is a slowing of price rises, as opposed to anything more dramatic.

The outlook for both the housing and mortgage market is for a return to a more stable, balanced picture following the upheavals of the last two years.