Why inflation could actually be good for your money

Higher energy bills, pricier grocery stores and rising gas prices have left families facing the biggest cost-of-living crisis in a generation. But it doesn’t all have to be negative.

Inflation is already at its highest level in 40 years and is expected to hit double digits later in the year. Despite the gloomy mood, the rising costs also have advantages – they are causing debt to “really” shrink.

It undermines the true value of money someone has borrowed. This can be difficult to spot. Someone who owed £150,000 on an interest-free mortgage 12 months ago has £150,000 outstanding today – it doesn’t seem like they’re doing any better. But inflation means £150,000 isn’t what it used to be, purchasing power has fallen.

It may be easier to see the effects over time. If you bought an average house 25 years ago, in 1997, it would have cost £58,400. If you took out a £50,000 mortgage on an interest basis, you would still owe £50,000 today.

In the meantime, however, the purchasing power of the debt would have more than halved. According to investment firm Hargreaves Lansdown, £50,000 had the purchasing power of around £107,000 today. And if wages keep up with inflation, your monthly mortgage payments as a percentage of your income will have fallen dramatically. Why inflation could actually be good for your money

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