Rising food prices have only increased the benefits of saving money on our grocery shopping. In the past few months, shoppers have been deserting ‘up market’ grocery retailers like Marks and Spencers, but demand at ‘cheap’ budget end supermarkets has been booming.

As well as choosing the cheapest shops and supermarkets, these are some more tips to save money on grocery shopping.

Buy in Bulk.

There are often significant discounts for buying in bulk. Buying multipacks is much cheaper than buying single. If the items are non perishable, store items in a garage or spare cupboards. This will also reduce the number of times you have to travel to the supermarket, saving on petrol costs. Try work out the average price per item / price per gram before deciding what to  buy.

Don’t Buy Items You Don’t need and can’t eat.

Supermarkets are always trying to get us to buy a higher quantity. Special offers like 4 for the price of 3 are enticing, but, unless you are able to eat 4 melons in a week, it is not worth buying. It is fine if the items are non perishable, but often we end up buying too much fresh food making the special offers an illusory way to save money.

Buy Own Brands

An easy way to save money is to buy supermarket branded food, rather than the more expensive branded items. The difference in quality is much less that the advertisers would like us to believe. For example, Tesco value baked beans are half the price of Heinz beans. But, it is actually Heinz who make Tesco value beans. They just add a little less sugar and more tomato juice! For most items, you would struggle to tell the difference between branded and non branded items. Therefore, this is an easy and effective way to save money.
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In a climate of rising prices and stagnant incomes many consumers are facing the unwelcome situation of declining disposable incomes. Furthermore, high levels of debt and the prospect of rising unemployment leaves many of us in a difficult situation.

These are some tips to save money and increase your disposable income.

Look at Your Biggest Expenses First

To save real money, it is always worth starting off with our biggest expenses first. These will be your mortgage, rent, insurance premiums, petrol. Evaluate each expenditure and examine possibility of cutting the cost. For example, with your mortgage make sure you are not sticking with your existing firm out of loyalty and paying too much. Even in the current climate it is worth trying to remortgage. Save 5% on your mortgage and you may find an extra £50 a month. Save 25% on toothpaste and you may find an extra 20p a month.

Don’t spend out of habit.

A good way to save money is to forget all your typical expenditure and start from scratch - working out what you really need and want. Some of your bills are essential like rent, gas and electricity. But, you may feel that the cable tv is not necessary or magazine / gym subscriptions that are rarely used. This approach enables a spring cleaning in your spending.

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The difficulties in the Housing market have caused many home sales to fall through and not be completed. The Bank of England said that in some areas upto 40% of house sales were falling through. This is because:

• Mortgage offers being withdrawn by banks and lenders.
• Fears over falling house prices are causing buyers to back out.
• People unwilling to accept lower offers.

In times of rising house prices, the biggest problem facing homeowners is the possibility of getting gazumped (people coming in with a higher offer before contracts are exchanged). But, with house prices falling, the problem is now people dropping out.

The UK housing market has long suffered difficulties in completing house purchases. In today’s climate lengthy delays mean that house chains can easily fall through. It only takes one nervous buyer to pull out causing problems throughout the housing chain.

This is another reason to try and speed up the process of selling houses

The only good news if for landlords letting out houses to tenants. With demand for buying a house collapsing, demand for renting has soared by 38% in the past year.

The UK housing market has numerous problems:

1. Long Term shortage of Housing
2. Volatile Prices - Booms and Busts in prices. People get carried away in booms leading to painful periods of correction.
3. Shortage of Mortgage Lending.

Policies Which would Help.

1. Encouraging Use of Empty Homes. There are an estimated 1 million empty homes to help dealing with long term shortages without having to build unpopular ‘eco towns’. This could involve greater tax breaks for rennovating empty houses. It might involve higher taxes on empty property giving landlords an incentive to rent and make use of them. (see: problem of empty homes)

2. Increased Supply. In the long term the government still need to actively promote increased supply of both rented and owner occupied housing. The current crisis has led to a sharp fall in house builds, but, when the market recovers we may find again shortages of supply. The government need to look at high density housing in existing population conurbation’s. Without adressing the housing shortages, house prices and rents will remain very high reducing people’s living standards. (why is there a housing shortage?)

3. Mortgage Security. In the short term, the most pressing problem facing the housing market is how the mortgage sector has dried up, leading to a dramatic fall in housing sales. In the short term, there is a strong argument for the government to offer mortgage backed securities for new home buyers and the wider property market. This extra liquidity will hopefully help regain a sense of normalacy in the mortgage sector.
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Debt levels in the UK have been growing significantly for both:

1. National Debt (Government debt. The amount government spending exceeds tax revenues)
2. Personal debt (consumers, firms)

Personal debt levels in the UK

Personal debt includes both secured (usually mortgages, loans against value of home) and unsecured (personal loans, credit card debt). The level of both types of debt have increased in the past few years. Generally, secured debt is seen as less harmful, but, with falling property prices there is the prospect of more people facing negative equity and difficulties of repaying should they default.

• Consumer debt totals £1.4 trillion (about 80% of this debt is in the form of mortgage loans secured against property)
• Over 100,000 go insolvent each year
• UK has highest levels of consumer borrowing in Europe. (but less than US)
• In the past year borrowing has increased whilst saving has fallen. For every £1 saved. Britons borrow 69p (on loans, credit cards but excludes mortgages).  A year ago, this ratio was 29p borrowed for every pound spent.
• Falling house prices could make secured debt unsecured and leave people with negative equity
• According to National Consumer Council, about six million people are struggling to meet credit demands.
  

National Debt in UK

Government debt is the amount the government need to borrow from the private sector, usually in the form of selling bonds to investment trusts and pension funds.

• National debt in UK stands at £555bn in June 2008.
• As a % of GDP national debt has increased from 30% of GDP to a forecast 38% in 2009 (forecast is likely to be wrong and an underestimate)

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The number of loans approved for house purchases in June was just 21,118, a drop of 23pc compared to May, according to the British Bankers’ Association. Since June last year, mortgage approvals have dropped significantly (64% on last year. This slump in the mortgage sector reflects the current credit crunch, lack of confidence and concerns over falling house prices. Banks have tightened up their criteria for lending. In particular the amount of deposit required has increased alot.

• The number of remortgages have fallen by 13%
• The number of households using their house for equity withdrawal fell by 37%

The slump in mortgage lending has been a powerful influence on house prices. House prices have fallen 17% in past 12 months and further falls are likely with the housing market showing its quietest volumes since the early 1990s.

These figures will put pressure on Government to take further action to bolster  mortgage lending.

See: scheme to ease credit crunch

Readers Question: My mother passed away recently and we now have her house on market…we have dropped but don’t want to go too silly as they have worked hard all their lives and it feels wrong to sell at too low a price.  I would like to give a good proportion to my son to buy his first house.  What would you suggest?  renting for a while and also how long do you predict this to last?  Thankyou.

Thanks for question. I would suggest that the general consensus is for house prices to fall by 12-15% over the next 12 months. After 12 months it becomes more difficult to predict and there is a divergence in forecasts. Some pessimists feel house prices could fall 30% over (or even more) in the next 2-3 years; they feel that house prices are grossly overvalued. However, others, such as myself, feel house prices in the long term will stop falling after 12 months and regain their upward trend. See forecasts for long term house prices and Buying cheaper than renting.

Alot depends on when the mortgage crisis is averted. This is the main downward drag on house prices - people simply can’t get new mortgages. When liquidity is restored to the mortgage sector, this will definitely help improve the housing market. The problem is that past relief efforts don’t seem to have worked. It is hard to know when the credit crunch will end.
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A serious long term problem in the UK is a shortage of houses. (why is there a shortage of housing in UK?) The number of newly built houses in 2008, was the lowest figure since the second world war. Because of a shortage of housing, the ratio of house price to earnings has increased above its long term average creating difficulties for first time buyers.

The government is keen to increase the number of new houses built. However, these often prove controversial. There is widespread opposition to new ‘eco towns’ which lead to a loss of the environment.

It is surprising to find out there is actually a huge number of empty houses in the UK. The Empty Homes Agency estimates that there are 840,000 empty homes in the UK. They also estimate that another 400,000 houses could be created from existing commercial property.

Why Are Homes Left Empty?

1. Cost of rebuilding dilapidated housing
2. Property speculation. People buy to leave. People buy a new house and then don’t let it out to maintain the new house’ premium. Rising property valued have meant less incentive to get rentable income
3. Problems in getting planning permission to develop houses.
4. Costs and bureaucracy of renting out houses.
5. People take time to sell houses they have inherited.
6. 2nd Homes, which people don’t live in.

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Unemployment in the UK is rising at the fastest rate since 1992, inflation has shot up faster than wage growth, house prices are falling and general economic confidence has slumped. Most economists feel that some form of a recession is now inevitable. These are some tips to help survive an economic downturn.

1. Don’t Panic

Things are bad, but the media tends to exaggerate the extent of a downturn. Statistics can be misleading as media tend to focus on the most eyecatching statistics. For example:

• Petrol and food prices are increasing by 20%, but, other items in the CPI are falling.
• Unemployment is rising at the fastest rate since 1992, but, comparatively it is much lower than any time in the 1980s.
• Recessions tend to be short lived 12-18 months. (see: How long do recessions last?)

2. Spend Frugally

With disposable income stagnating or even falling, spend frugally. Discount shops such as Matalan, Aldi and Primark have seen increased demand as people look for good value. A squeeze on household income is a good time to look at reducing unnecessary expenditure and making economies which don’t harm your living standards. See: Ways to avoid overspending

3. Stay Positive.

If your firm is looking to make redundancies, it is important you give compelling reasons for the firm to retain you. Dress smart, be cheerful and optimistic. Don’t annoy your boss by asking for a large payrise or always talking about redundancies. If you are willing to adapt to more difficult circumstances and work with a helpful attitude, the firm will be much more likely to retain you in any wave of redundancies.

4. Be Aware of Alternatives.

Don’t feel your present job is the only option for you. The labour market is becoming increasingly flexible for skilled and motivated workers. Stay alert for ways to increase your skill base or  options for second incomes. Don’t wait before you are made unemployed; keep your eyes out for alternative jobs - changing sector if necessary.

5. Different Sectors will be Affected in different ways

The current recession is hitting hard sectors such as construction, motor industry, real estate, retail and banking. If you are in these sectors it is even more important to work on alternative sources of income and jobs. Some sectors such as education may be largely unaffected.

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The Council of Mortgage Lenders have put forward a scheme to help ease the shortage of mortgage funds for new homebuyers. The CML hope that the Bank of England will be willing to guarantee a market for new mortgages. It would encourage people to invest in these products creating more funds for mortgages.

With no sign of the credit crunch easing, some are concerned that activity in the housing market has slumped to alarmingly low levels. The Royal Institution of Chartered Surveyors have recently published a report stating falls in house prices and the lowest levels of housing activity since records began in 1978. The RICS also warn that house prices could undershoot as people overeact to negative news.

Analysis

The Bank of England’s previous £50bn scheme to secure mortgage lending hasn’t solved the problem in the mortgage industry. This new scheme might help because it will extend the scheme to first time buyers as well. It is worth trying to act, rather than hoping that the problems will end. With the paralysis in the housing market, there is a chance house prices could undershoot, especially given:

• Long term house price forecasts
• Buying better than renting