What is a ‘trapped in place’ economy and does the UK have one?

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How long have you had your car, your phone, your house or your job? A recent Business Insider article explored the concept of the current economic situation causing Americans to feel trapped in place. While they may want to make major life changes, these all come at a cost and so most people choose  to stick with what they have because the consequences outweigh the positives. Long story short, they’re ’trapped’ where they are.

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While this article had a US focus, it made us think about what was happening in the UK. If you’ve ever wanted to move house to get a little more space, but can’t afford the stamp duty, increased mortgage rates, surveys, solicitor’s fees, the movers and other hidden charges, then you’re experiencing being trapped in place. Or perhaps you’ve looked at changing your employer in the hope of getting a pay rise, but found they offer the same as what you;re being paid already. Again, this is an example of being trapped in a situation that you’ve been in for longer than you might like. 

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This article will examine the UK housing market and the labour market to examine if it is a similar situation for Brits as it is for Americans. And then we’ll look at what you can do about it, to free up some money so that you can better enjoy the situation that you’re finding yourself in.

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How is the UK housing market right now?

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According to the Office of National Statistics (ONS), housing affordability in England and Wales has been decreasing for several years. This means that it is becoming more and more difficult for people to buy a house.

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 In 2023, full-time employees in England could expect to spend around 8.3 times their annual earnings buying a home. In the 12 months to September 2023, they estimated that, in England, the average (median) home sold for £290,000, while the average (median) workplace-based full-time earnings were £35,100. If you’re renting a house right now, you’d have to save up a huge deposit to buy one as most mortgage lenders will only lend up to five times an annual salary.

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And it’s not just renters that are stuck where they are. According to a study by the IMLA (The Intermediary Mortgage Lenders Association), UK homeowners are moving house 50% less often than they did 30 years ago! Moving home was historically a fairly regular occurrence with homeowners moving on average, every 7.4 years. However, now the market is barely moving with homeowners choosing to stay put for almost 20 years!

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A number of factors contribute to this including:

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• Significantly increased and sky high house prices – on average house prices have increased by a staggering 7% per year since 1980!

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• Older generations remaining in larger properties – this is due to a lack of suitable properties (e.g. bungalows) being available, making downsizing less of a viable option.

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• More stringent rules on mortgage applications – these changes have been mainly due to mortgage debt historically being deemed high risk in terms of financial stability.

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• Mortgage rate increases - there’s a strong chance your current mortgage rate will be way less than any new one taken out right now

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• Job insecurity: If people are worried about losing their job, they may be less likely to take on the financial commitment of buying a new house.

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A recent Forbes article looked at mortgage rate predictions for 2024 and 2025. The majority of analysts predicted rates will remain stuck until at least the third quarter of 2024, with some falls expected in 2025. For house buyers, it makes sense to wait it out until they start to fall to avoid paying over the odds. When it comes to home buying, a lot of the UK population aren’t going anywhere.

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How is the UK labour market right now

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There are fewer jobs available in the UK than ever before, according to data from the ONS. The estimated number of vacancies in December 2023 to February 2024 was 908,000, a decrease of 43,000 from September to November 2023. This  is the 20th consecutive decline over a quarter with 934,000 vacancies the previous quarter between October and December 2023.

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Five industry sectors fell below pre-Covid levels with the largest drops in vacancies in retail, wholesale, transport, storage and motor trade. 

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At the same time, pay is decreasing. Pay growth, excluding bonuses, fell sharply from 7.3% to 6.6% in the three months to November 2023.

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If you’ve thought about moving jobs, you might have searched around and found that there are fewer vacanises than you thought there would be and those that are available are not paying as much.

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Added to this, the longer you work for a company, the more benefits you accrue such as maternity pay, redundancy entitlement and pension accumulation. If you change jobs, you’d have to start again, so the salary needs to be a marked difference to persuade you to switch and these opportunities are lower than they used to be.

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Rising costs of living in the UK mean we have less to spend on the ‘big things’

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Upgrading to a new house, a new car or a new job requires having financial stability, which is harder and harder to achieve due to the rising cost of living.

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Prices of food and non-alcoholic beverages rose by 7.0% in the year to January 2024 according to the latest Consumer Prices Index including owner occupiers’ housing costs (CPIH). And that was following a rise the previous year. If you look at the past two years between January 2022 and January 20224, the overall price of food and non-alcoholic beverages rose around 25%. In the 10 years prior to this, overall food and non-alcoholic beverage prices rose by 9%.

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This gigantic price hike is much more than wages increased by, making households feel squeezed. If their shopping list is roughly the same every week, it will take more of a chunk out of their household income than previously.

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HyperJar has seen this play out in real life. We analysed the data of customer spend on a HyperJar card in supermarkets and found….

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And it’s not just food that’s emptying the pockets of the UK population. Around 4 in 10 adults (41%) who pay energy bills said it was very or somewhat difficult to afford them.  

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This was according to those asked between 17 and 28 January 2024 as part of the ONS latest Public opinions and social trends bulletin.

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The survey also revealed that 44% of adults in Great Britain are trying to use less fuel, such as gas or electricity, in their homes because of the rising cost of living.

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What can be done about the rising costs of living?

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At HyperJar, we’re all about #spendinglifewell, helping people budget and spend on things that are important to them.

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We’ve noticed that making small changes to daily spending habits can make a huge difference over the course of a year. For example, switching to supermarket own brands and reducing the cost of the average weekly shop could save people more than £100 per year.

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Using HyperJar cashback vouchers to buy a daily coffee will save you £64.35 a year, compared to paying the full price of the coffee. If you buy pastries or sandwiches in the same transaction, you’ll save even more.

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We also looked at broadband and mobile phone contracts. Haggling as soon as the contract is up for renewal could easily save a person £20/ month or £240 / year, which is all money that can be saved towards making bigger life changes (or helping to cover the rising costs of the weekly shop without struggling).

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Also if you join HyperJar the spending super-app before the end of May you can get up to 2% cashback on all your card spending until the end of October 2024 further helping you make your money go further!

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CONCLUSION

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Mortgage rates, a flat housing market and fewer job vacancies available, certainly seem to suggest that the UK population is just as trapped as the US.

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While inflation is falling and the economy isn’t quite as bleak as what it was, the sad reality is that most UK households are still bunkered down and waiting for the storm to pass.

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However, it’s not all doom and gloom, as there are smart spending apps like HyperJar that can help people put money away into different jars, set targets and organise their money in a visual way.  Users are also able to analyse where they spend their money, so they can try and bring it down by switching to supermarket own brands. Using cashback vouchers for the weekly shop will save them more money, which they can put into any jar they want.

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While movement may be slow, if people set targets using apps like HyperJar, there is hope that even if the economy is currently ‘trapped in place’, there’s hope we can improve the situation in the future.

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