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Protect yourself from the rising costs of living

You can’t have missed it – almost everything we use and consume is suddenly costing a lot more than it used to. It’s also having a marked impact on internationals abroad.

Protect yourself from the rising costs of living
Worried about rising costs? It's not just you -- prices are soaring across the globe. We find out why. Photo: Getty Images

Almost everyone has felt the effects of sudden cost of living increases, and for many it has had real consequences on where and how they live and work.

With soaring energy bills and increases in both food and petrol, consumer inflation in Europe hit 8.6 percent in June and could reach nine percent by the end of the summer. Those who moved abroad to work or study have felt the effects particularly keenly.

Together with the international health insurance provider, AXA – Global Healthcare, we investigate why costs have soared so quickly, and exactly how this impacts those who have made another country their home. 

What is driving the increase in living costs? 

While there’s no singular reason that living costs are increasing across the globe, there are several factors that we can point to as contributing to the problem. 

First and foremost, the coronavirus pandemic had a devastating effect on manufacturing industries and supply chains around the world. Worker illness, government shutdowns and disruptions to the supply of essential resources dealt a significant blow to global GDP in 2020, resulting in a fall of more than three percent. 

Restarting manufacturing and global logistics after months of effective shutdown subsequently led to a substantial rise in the costs of goods, as supply struggled to keep up with surging demand. Even with massive investment in logistics infrastructure, to date there are still lengthy delays supplying goods such as machine parts and electronics, leading to surging business costs.

Climate change has also played a role in the crisis. The increasing unpredictability of weather patterns over the past two years has meant that many regions around the world were impacted by severe weather events, including several in Europe. An increased incidence of heat waves and cold snaps have also placed a strain on gas reserves, leading to escalating power bills. 

Find out how taking out health insurance can help offset cost of living increases 

Of course, the war in Ukraine is having a serious impact on the cost of living, most noticeably in Europe. The World Bank has suggested it could be responsible for the biggest price shock in 50 years. As a major agricultural nation, wheat prices have begun to sharply increase following the invasion, as has the price of natural gas – Ukraine holds Europe’s second-largest reserve of the resource.

Another consequence of the Ukraine war is spiralling fuel prices. As Russia is one of the world’s top three oil exporters, its current frosty relationship with the West means that the cost of oil per barrel will remain elevated. Coupled with logistical delays in delivering gas and fuel, as an ongoing consequence of the pandemic, consumers and businesses are experiencing substantially increased transport costs. 

Boiling point: Climate change is one factor increasing the cost of living. Photo: Getty Images

How do rising costs impact internationals? 

The cost of living crisis is having a significant effect on the mental health of internationals. Research by AXA – Global Healthcare, in the form of its Mind Health Index 2022 supports this idea. 

Its research, conducted prior to the current crisis, indicated that 28 percent of non-native (international) participants rated their stress level between eight and 10 (out of 10), while 35 percent of non-natives said that financial stability was an issue causing stress. Thirty-nine percent of non-native participants believed that they faced an uncertain future when it comes to work and finances – a massive stressor, regardless of where you may be. 

The causes of this are also clearly identifiable. Primarily, many internationals simply do not have the assets to sustain repeated price shocks in terms of food or energy costs. A survey conducted by market research firm, Finaccord, found that approximately three-quarters of internationals worldwide are individual workers – ie. depending on a single income.

A further third are also students, meaning that they are paying tuition costs while trying to support themselves, whether with a local job or payments from home. Quite simply, many internationals cannot afford to pay much more for necessities, particularly at a time when wages have stagnated. 

Many internationals also lack the kind of support networks that would let them otherwise overcome economic turmoil. Earlier research by AXA revealed that 87 percent of participating internationals felt isolated and cut off from family and friends, who would otherwise be able to assist and share costs.

As a consequence, further research conducted in 2019 by AXA – Global Healthcare revealed that one in five participating internationals would return home should prices continue to rise – even though over 50 percent reported that they enjoyed a better salary and quality of life than they did at home.

The research also discovered that housing and tuition costs comprised the hardest financial pressures for internationals – with 51 percent identifying rent and housing costs, and 40 percent identifying education as more costly than expected. 

It could be stated, therefore, that prior to the global spike in the cost of living, internationals already found themselves in a tight spot, with the threat of having to return home looming over them. Now, with skyrocketing prices, excessive and prolonged stress is an even greater contributor to a range of illnesses. 

Internationals are more prone to sudden increases in costs of living. Discover how AXA’s health insurance options can ensure some certainty

Securing an international future

Moving abroad to start a new life is a costly endeavour and one that many work for years to achieve. It’s worth it, however: the experience of working or studying abroad is suggested to have a number of economic and lifestyle benefits.

That said, navigating the financial stresses of rising costs can be challenging. 

Many internationals opt to offset the challenges of rising costs with comprehensive health insurance coverage. AXA – Global Healthcare’s research shows that a quarter of internationals worry about the cost of healthcare in their new home, and would even travel abroad to seek treatment. 

Depending on where you are, unforeseen medical costs can run into the tens of thousands, meaning the difference between getting by, and having to return to your home country.

If you’re seeking a health insurance provider that offers comprehensive coverage and a range of useful benefits, you may want to consider AXA – Global Healthcare. Operating globally, the company has over 55 years of experience in covering those living and working abroad¹.

AXA – Global Healthcare policyholders get 24-7 care from personal advisors, connecting them with excellent private healthcare from a worldwide network of doctors, surgeons and specialists.

Outside of emergency care, AXA – Global Healthcare provides a number of additional benefits. Policyholders are able to access a number of annual check ups. Special care is available to those diagnosed with cancer, and mental health issues aren’t ignored – the AXA – Global Healthcare Mind Health Service¹ means that you have professionals for support wherever you may be. 

As an international, dealing with the rising costs of living can be difficult. However, you can ensure that should something happen to you, you can avoid unexpected financial burdens.

Furthermore, with AXA – Global Healthcare’s range of additional services, you can make sure health problems are identified before they become a problem, allowing you to focus on living, working and enjoying life abroad. 

Find out more about AXA’s Virtual Doctor service, mental health support and other services offered so you can enjoy life abroad with the knowledge that you’re fully covered

¹AXA has been providing International Private Medical Insurance for over 55 years

²The Mind Health Service is provided by Teladoc Health,

AXA Global Healthcare (EU) Limited. Registered in Ireland number 630468. Registered Office: Wolfe Tone House, Wolfe Tone Street, Dublin 1. AXA Global Healthcare (EU) Limited is regulated by the Central Bank of Ireland.

AXA Global Healthcare (UK) Limited. Registered in England (No. 03039521). Registered Office: 20 Gracechurch Street, London, EC3V 0BG, United Kingdom. AXA Global Healthcare (UK) Limited is authorised and regulated in the UK by the Financial Conduct Authority.

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PROPERTY

EXPLAINED: How to restructure and reduce your mortgage in Denmark

Denmark's unique borrowing system has enabled thousands of people to restructure their mortgages this year, cashing in on high interest rates which have caused a drop in market value of covered bonds. We explain how it all works and how you can potentially pay off a sum of your mortgage.

EXPLAINED: How to restructure and reduce your mortgage in Denmark

How does the mortgage system work in Denmark?

Denmark has a unique mortgage model, which is regarded as one of the best in the world.

When you take out a loan to buy a house in Denmark, the bank finances the loan through a covered bond [Danish:realkreditobligation,ed.] What makes the model unique is that you as the borrower know exactly what covered bond is issued to finance the loan.

“This direct link is very special to Denmark,”  Peter Jayaswal, executive director at Finans Danmark told The Local.

“You can follow what the market price is for the bond that is funding your loan in the capital market. A German borrower for example has a mortgage by the German bank issuing a loan using a covered bond. But there is no link, so the homeowner doesn’t know what the bond is.

“In Denmark, you can see it exactly. You can go onto your bank website everyday and follow the market price. That means that we have this early repayment system where I as a borrower am allowed to prepay my loan by buying back at market price the bond that has funded my loan,” Jayaswal explained.

When interest rates are increasing, it means that the price on the bonds is decreasing and this is why thousands of homeowners in Denmark have bought out their bonds this year, at a low market value and paid off a portion of their mortgage. 

READ ALSO: Interest rates encourage Danes to restructure mortgages

So how can I make this early repayment on my mortgage?

The first thing to do is to set up a meeting with your bank so they can assess whether you will benefit from the drop in bond value.

The market price of covered bonds is well documented in Danish media but you can also follow them on your bank’s website or by asking for an appointment with your bank to assess your current mortgage.

“You may at some point in the past have taken out a mortgage of 1 million kroner with a one percent fixed interest rate. To keep it simple, let’s say the loan is without amortisation.  When you took out this mortgage, the bond was issued at 99 kroner meaning that the nominal debt will be around 1,010,100 kroner to give a 1 million kroner revenue.

“Today you can see the interest rates have increased and the price on the bond financing your loan is say 80 kroner. As a borrower you can buy the bond in the market at market price and prepay the mortgage loan. But you only need to take out a new loan of around 808,000 kroner to do this.

“So you can take a new loan out at 808,000 kroner and use this to repay your existing loan and reduce your debt by around 200,000 kroner. This transaction can be done simultaneously by your bank, so you won’t end up with two loans,” Jayaswal told The Local.

What about interest rates on my mortgage?

The interest rate you get for your mortgage can be fixed or variable and they mirror the prices investors pay for the bonds. 

Fixed rate mortgage

Today, the fixed interest rate is five percent. This means that if you decide to buy your bond at the lower market value, you will have to take out a new loan at a higher interest rate.

“Using the example of reducing your mortgage by 200,000 kroner by buying the bond at a low market value, every month you are now paying an interest rate of five percent fixed term, rather than your one percent you had before. So you are paying more each month for the benefit of paying off a portion of your mortgage early and the benefits will decrease over time. 

“You usually break even after around ten to fourteen years but the bank will calculate this for you,” Jayaswal said.

“If you know you’re moving in two to three years, it makes sense to get a new loan with a higher interest rate because you’ll have to repay the loan anyway when you move. But if you think you’ll be in your home a long time, keeping this loan, then you need the interest rate to decrease in ten to fourteen years.

“And that’s the problem because we must be frank and say we can do all the forecasts but in the end no one knows what future interest rates will be, so it has to be the decision of the borrower,” Jayaswal explained.

Variable rate mortgage 

The other option is to take out a variable interest rate mortgage to buy the bond, which today is around three percent. However this carries a risk, as the interest rates are adjusted on a regular basis. F3 loans, for example, are adjusted every three years, while F5 loans have adjustments every five years.

“Changing from a fixed to variable interest rate, to reduce your debt and avoid an increase in interest rate, comes with a risk that you don’t have a fixed rate for 30 years, so you are more exposed and that’s very important be aware of,” Jayaswal told The Local.

On Monday, the company Totalkredit, the largest provider of real estate loans for private homes, auctioned flexible loans with resulting interest rates exceeding 3 percent on the F1, F3 and F5 loan types. That means the interest on these types of mortgages will be at their highest for several years.

According to Finans Danmark, Danish home owners have repaid 337 billion kroner of their mortgages in the first three quarters of 2022. Many of these home owners have chosen to switch to variable interest rates. You can swap back to a fixed-rate mortgage at any time but you also have to be aware that these rates may have increased by then too. 

How do I decide which option to take?

“I always say to people, feel free to go to your bank, ask them to make the calculations for you, so you have the foundation to make a decision”, Jayaswal says.

“Some might think a 30-year mortgage at a fixed rate of one percent is great, especially because today interest rate is five percent. Others won’t mind paying a five percent interest rate for a few years, because they want to reduce their debt today and believe interest rates will decrease. It is up to the borrower to decide.

“It’s not that one option is better than the other, it’s that you have opportunities and this is unique in Denmark,” Jayaswal said.

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