How to cope with the rising cost of living

Nearly a third of people are struggling to pay their rent or mortgage in the face of the rising cost of living.

Research by the Office for National Statistics found that 30% of people said they were having difficulties meeting their housing costs. A further 3% admitted they were already in arrears.

Nine out of 10 people reported an increase in their cost of living during March, with 23% saying they were finding it harder to pay their usual household bills, particularly for gas and electricity.

As a result, 43% of people don't think they'll be able to save any money in the coming 12 months.

The situation is likely to lead to have an impact on the housing market in the months ahead, according to our latest House Price Index.

The rising cost of living is likely to deter people from trading up the property ladder, while stretched budgets will limit the amount those who do want to buy a new home can borrow.

Meanwhile, higher bills mean it may take first-time buyers longer to save for a deposit. 

Here are some of the steps you can take to help with the rising cost of living.

Homeowners

There are a number of ways homeowners can reduce their monthly mortgage costs.

If you're on your lender’s standard variable rate (SVR), the rate you are automatically moved to when your mortgage deal ends, you should consider remortgaging as soon as possible.

Although mortgage rates are rising, there are still good deals available. The average SVR is 4.71%, compared with an average of just 2.86% for two-year fixed rate mortgages.

If you have a £200,000 mortgage, switching from an SVR to a fixed rate product could save you an average of just over £200 a month.

If you're currently on a fixed rate mortgage but are facing difficulties affording your repayments, you could consider increasing your mortgage term.

Extending your mortgage term from 20 years to 30 years would save you an average of £275 a month, based on a £200,000 mortgage and an interest rate of 2%.

Alternatively, if you are really struggling, you may be able to move on to an interest-only mortgage, under which you pay interest each month, but don't reduce the amount of outstanding debt you owe.

Swapping from a repayment to an interest-only mortgage would reduce your monthly repayments from £854 to £333, based on the mortgage above.

But remember, you will still need to repay your outstanding debt over the long term.

If you're having problems with your mortgage repayments, it's important to get in touch with your lender as soon as possible. 

They will work with you to find a solution to help keep you in your home.

Renters

Rents are currently rising at their fastest rate for 13-years, with rents standing at an average of £969 a month, according to our latest Rental Market Report. 

But if you're looking for a new home to rent, don’t despair, there are landlords out there who charge below market rates.

You can use our Advanced Search tool to scour the market for a good deal. You can also set up alerts to help you stay ahead of the crowd when a property within your budget comes on to the market.

It also pays to do some research to find out which locations in your area may have slightly lower rents, particularly if you're still working from home and do not need to commute.

If you're currently in a property but are struggling to afford the rent, it's important to talk to your landlord.

While landlords are under no obligation, some may be prepared to reduce the rent temporarily if it enables them to keep a tenant.

Landlords face a number of costs associated with signing up a new tenant, including agency fees, void periods in between contracts, and cleaning and redecorating costs.

You're more likely to be successful in your request if you ask for a modest reduction for a limited period. You should also explain to your landlord how you will be able to resume full payments in the future.

One of the biggest cost of living increases many people are struggling to cope with is rising energy bills.

In April, Ofgem increased the energy price cap on gas and electricity bills by 54%, increasing the average annual bill for dual fuel customers to £1,971.

While the cost of energy has gone up across the board, you may still be able to find a deal that's cheaper than your current supplier.

The price cap only applies to people on standard variable rate tariffs, so if you are on one of these tariffs, you may be able to save money by transferring to a different tariff, even if you do not change supplier.

The energy price cap is expected to increase again in October, so you may want to look into a fixed rate deal to protect yourself from future price increases. 

That said, fixed rate tariffs may be more expensive than the standard variable tariff, as future increases may have been factored in.

It's also important to note that under a fixed rate tariff, the amount you are charged per unit of energy is fixed for a set period of time, usually a year, not the amount you pay each month, which will still fluctuate in line with your energy usage.

Comparison site Uswitch has a Quick Checker that enables you to enter details about your current energy plan. It then scours the market to see if there is a better deal out there for you, based on your projected annual spend.

You can also sign up for alerts from Uswitch to notify you when new deals are launched by energy companies.

In the meantime, you can try to reduce your energy usage. Having a smart meter installed will enable you to monitor how much different appliances cost to run, helping you to make informed decisions about how to cut back.

There are also a number of simple steps you can take to reduce your energy usage, such as running your washing machine at a lower temperature, setting it to run at night (the cheapest time for energy usage is between 10pm and 5am) and only putting it on when you have a full load.

Now that we're coming into summer, it's worth avoiding using the tumble dryer if you can.

Other tips include turning off lights and appliances when you are not using them, using a microwave rather than an oven to cook food, and taking quicker showers.

You should also check if there are any energy support schemes that could help you, such as the Warm Home Discount Scheme. Uswitch has a tool to help you check which schemes you may be eligible for.

Annual grocery bills are expected to increase by an average of £271 this year, according to market research company Kantar. The good news is that this is one of the easier areas in which to save money.

Switching to cheaper supermarkets, such as Aldi, Lidl, or Asda can help to reduce your shopping costs. 

Consumer group Which? found that a basket of 21 grocery items in Lidl costs an average of £26.83, compared with £29.39 at Sainsbury’s and £36.04 at Waitrose.

If you don’t have much choice of where to shop in your area, you can still cut the amount you spend by opting for supermarkets’ own brand and basic products, rather than brand names.

This simple change can reduce grocery costs by up to 30%.

You may be able to reduce your grocery bills further by shopping at the end of the day, when supermarkets reduce food that is close to its expiry date.

Cooking meals and sauces from scratch, rather than buying pre-prepared food, can also work out cheaper. Buying in bulk, batch cooking and freezing portions will also help.

Doing a weekly meal plan in which you use leftovers from one meal in another meal can also reduce costs.

Try to cut down on food waste. The average household throws away the equivalent of £496 worth of food a year, according to the Eco Expert.

With the cost of living rising, it is worth taking a look at all of your outgoings to see where you can cut back.

If it has been a while since you changed your broadband provider, it may be worth checking the market to see if more competitive deals are available. 

If you have a mobile phone, you may decide you no longer need to keep your landline. If your mobile contract is coming to an end, it might work out cheaper for you to switch to SIM-only, with data deals costing as little as £6 a month.

You may also decide to cut back on subscriptions to streaming services, such as Netflix, which has recently suffered its first fall in subscribers. 

But when trimming your budget, it's important to take a holistic view. While cancelling a subscription service may save you money each month, there's no point doing so if it tempts you to have more nights out.

If you're struggling to save at the moment, you'll want to make sure what you're setting aside is working as hard as possible for you.

While there are currently no savings accounts that pay interest that beats inflation, there are still some good deals.

The best rates are available on accounts which either require you to lock up your money for a set period of time, or make regular contributions each month.

Discover the best savings accounts right now at Money.co.uk

A number of banks and building societies are currently offering interest of more than 2.5% on regular savings accounts, with a best buy rate of 3.5%.

If you can’t commit to saving every month and don’t mind not having access to your money, you can get rates of up to 2.75% on a five-year fixed rate account and 2.5% on a two year one – but remember you won’t be able to touch your money for this period.

If you prefer to be able to get your money when you need it, easy access savings accounts are available with interest rates of up to 1.5%.

Putting money into an ISA will mean you don’t have to pay tax on the interest you earn. Best-buy interest rates on a fixed rate ISA are as high as 2.1%, although interest falls to 1.05% for easy access ISAs.

If you're saving for a deposit for a house, you might want to consider a Lifetime ISA.

These accounts allow you to save up to £4,000 a year, which the government tops up with a 25% bonus, up to a maximum of £1,000 annually. But the money must be used to either purchase a first home or for retirement.

What is a Lifetime ISA?