Home Money Protect yourself from Labor’s economic collapse: Wobbly markets, what it means for your mortgage, retirement, savings and house prices – revealed by experts

Protect yourself from Labor’s economic collapse: Wobbly markets, what it means for your mortgage, retirement, savings and house prices – revealed by experts

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UK government borrowing costs (ten-year gilts) hit their highest level since 2008 earlier this month in a surge, although they had been rising steadily for several months.

The chaos in the bond market and the rising cost of public debt have consequences for almost every aspect of our personal finances, from rising mortgage rates to more expensive holidays abroad.

The UK government’s borrowing costs hit their highest level since 2008 earlier this month in a sudden surge, although they had been rising steadily for several months.

They rose as investors around the world became increasingly concerned about the government’s economic strategy, as well as global uncertainty and the threat of inflation staying high for longer.

They fell slightly last week, but even the 10-year borrowing cost, at 4.67 percent, is still about 20 percent higher than a year ago.

And households are starting to feel the effects. However, that doesn’t mean you’re powerless. Here’s what it means for your finances and what you can do to protect yourself.

And you can read money guru Jeff Prestridge’s explanation of because Bond markets are nervous here.

UK government borrowing costs (ten-year gilts) hit their highest level since 2008 earlier this month in a sudden surge, although they had been rising steadily for several months.

Rachel Reeves is committed to respecting her own

Rachel Reeves has committed to adhering to her own “stability rule,” which promises that daily spending should be covered by income, not loans.

Mortgage rates rise

Swap rates, which lenders use to price their mortgage deals, inched higher following the bond market turmoil.

That has already translated into higher mortgage costs.

A number of big banks, including HSBC, Santander and TSB, announced rate hikes last week. Santander was the biggest performer, rising a selection of its residential products by as much as 0.34 percent on Friday.

Brokers anticipate more lenders will follow suit, with NatWest expected to increase rates in the coming days.

However, the outlook could improve later this year when the Bank of England begins to cut interest rates.

David Hollingworth, associate director at brokerage L&C Mortgages, suggests borrowers whose current mortgage is due in the next six months should strike a new deal now. “So if rates rise in the next few weeks, they will have got the best possible deal,” he says. “And if rates go down, they can get rid of it and find an even better one.”

Holiday cash drops

The pound has fallen about 4 percent against the U.S. dollar and about 2 percent against the euro this year following the bond market chaos.

Lee Hardman, senior foreign exchange analyst at financial group MUFG, says if the bond market turmoil continues there is a risk the pound could weaken further, especially against the dollar.

However, he says tourists planning to visit the United States in the summer may want to wait before buying their dollars.

“You may want to wait until summer approaches, as by then the pound will hopefully have regained some strength,” he says. ‘The dollar rose about 5 percent after Trump’s election on the basis that his policies would be positive for the US dollar. That’s already discounted. We believe that as the year progresses we will see strength reverse as a result of some disappointment over the possibility that all of these policies will not be implemented. “Plus, Trump likely wants a weaker dollar to support manufacturing, so he’s likely to pull back if it rises too much.”

But tourists heading to Europe in the summer might want to buy a few euros now, Hardman adds. This is because the pound does not look weak against the euro, even after falling in value last week, so it is less likely to strengthen in the coming months.

Retirement income increases

Those looking to secure a retirement income for life can get the best deal since 2008.

An annuity allows you to exchange a lump sum pension for a guaranteed annual income, either for a set period or until the end of your life.

Retirees usually buy them with the pension funds they have accumulated throughout their working lives.

Annuity providers purchase long-term bonds to generate returns that allow them to pay clients the income they have promised. As returns increase, so does the income that annuity providers can offer.

As a result, annuity rates have risen 70 percent from their low in 2020, according to William Burrows, who runs The Annuity Project and is a financial advisor to Eadon & Co.

UK 30-year bond yields at highest since 1998

UK 30-year bond yields at highest since 1998

“The outlook for 2025 is very uncertain and now may be a good time to lock in high annuity rates,” he says.

Someone who buys an annuity for £100,000 at the age of 65 today could earn an annual income of £6,465. This assumes you pay the same amount each year and continue to provide two-thirds of the income to a spouse five years younger when the annuitant dies.

The same annuity taken out in 2020 would pay just £3,800.

Someone who buys an annuity today could get a better rate than they would have gotten for years. However, whether one is right for you depends on your own circumstances and requires great consideration.

The level of income you achieve will change your life. Unlike many other financial products, once you’ve purchased an annuity you can’t get rid of it and buy another one if a better one comes along. The income you set is the income you receive for life. Buying a good one can leave you with a more comfortable retirement for the rest of your life, and even for your spouse if they survive you.

For more information on what you should consider, read our guide here.

Long-term savings rates increase

Long-term savings bond rates have risen slightly in recent days due to money market turmoil.

Fixed-rate bonds with a duration of more than one year rose to 3.91 percent last week, while the average one-year fixed-rate bond was unchanged at 4.18 percent, according to the expert in MoneyfactsCompare rates.

The best five-year bond is currently 4.55 per cent, offered by Birmingham Bank, followed by Shawbrook, SmartSave and Close Brothers at 4.52 per cent.

Longer-term bonds are a good option if you think interest rates are likely to fall in the coming years and you’re willing to keep your money in exchange for the security of receiving a guaranteed rate.

Easy access rates offer more flexibility, but lower rates. Rates are likely to fall further as the Bank of England cuts the base rate. The average easy access account currently pays 2.89 percent, according to MoneyfactsCompare.

Rachel Springall, finance expert at MoneyfactsCompare, says: ‘Savers may be worried about expectations that interest rates will fall this year, so a longer-term fixed bond could be more desirable.

“However, its popularity depends on whether savers looking for a guaranteed return are happy to keep their money for longer.”

Relief for home buyers

Homebuyers may find they can borrow more than in the past, while first-time buyers who may have struggled to get a mortgage could find themselves with a lifeline.

This is because the Government wrote to all the UK’s top regulators last month to propose ideas they could implement to help boost economic growth.

Last week, the financial watchdog, the Financial Conduct Authority, responded with its ideas.

One was the easing of mortgage lending rules, which were introduced in the wake of the 2008 financial crisis to protect borrowers from reckless borrowing.

The rules require lenders to make sure customers can still pay their mortgage even if rates rise.

They appear to have worked as, although millions of households have felt their finances affected by rising mortgage rates, defaults and repossessions have not increased substantially.

The FCA is therefore wondering whether the rules could be relaxed. That could make it easier for first-time buyers with smaller deposits to climb the property ladder and allow some borrowers to take on higher debts compared to their income.

FCA chief executive Nikhil Rathi said: “We will begin to simplify responsible lending and advice rules for mortgages, support home ownership and open a debate on the balance between access to loans and default levels. “.

The Chancellor’s growth mission, which prompted this FCA response, preceded the bond market chaos.

However, the turbulence of the last three weeks has made this ambition even more urgent.

This is because Rachel Reeves has committed to adhering to her own “stability rule”, which promises that daily expenses must be covered by income; In other words, it cannot be paid for through loans.

But, as the cost of borrowing increases, the proportion of income that goes toward servicing that debt also increases, resulting in less money to cover everyday spending.

The Chancellor is at high risk of exceeding her own spending limit. That leaves her with four options. The three you want to avoid are: breaking the rule, cutting daily spending, or raising taxes to increase income. The fourth, more acceptable option is to increase growth. Creating wealth would mean there would be more money to cover everyday spending without having to cut spending or raise taxes. So you can see why it seeks to grow anywhere it can.

Contactless limit

Another unlikely consequence of this increasingly urgent growth agenda could be an increase in the £100 limit for contactless spending.

Among its ideas to boost growth, the FCA also proposed removing the £100 limit when using contactless technology to pay by debit or credit card.

He said this would allow “businesses and customers greater flexibility, leveraging US experience and leveling the playing field with digital wallets.”

He did not detail how this could materially impact growth, but that does not mean the idea would be rejected.

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