Consumers face a bleak outlook for their loans and investments due to the UK Selling debt market Which has deepened since the new year.
British government bond yields rose, along with US Treasuries and other sovereign bonds, as investors expect interest rates to remain higher for longer due to firmer-than-expected inflation.
This has been exacerbated by investor concern about higher borrowing from the October Budget and fears that the UK may enter a period of stagflation, as persistently high prices hamper the Bank of England from cutting interest rates to boost the economy. The sell-off sent the yield on 10-year government bonds rising from 3.75 per cent in mid-September to 4.93 per cent on Thursday.
FT Money explores what it all means for your money.
Mortgages
The biggest impact of the sell-off will be on those looking to remortgage or buy a home in the coming months, since the fixed interest rate became… Mortgages Driven by market expectations about where interest rates may go.
Swap rates, which track these forecasts and are used by lenders to price their fixed-rate products, rose sharply from just under 4 per cent in mid-September to more than 4.5 per cent this week.
So far, reaction to the sell-off has been limited. “We're starting to see it feed into the narrative… We've already seen a slight uptick in fixed-rate mortgages, but nothing drastic has changed in the last few days,” said David Hollingsworth, director of real estate brokerage L&C.
The average two-year fixed interest rate fell by one basis point last week to 5.47 percent, while the average five-year interest rate rose by one basis point to 5.25 percent, according to financial data firm MoneyFacts.
“We're a world away from the mini-budget,” Hollingsworth said, referring to the Truss government's 2022 financial statement, which sent borrowing costs sharply higher and sent mortgage rates instantly higher. “The mini-budget came out of the blue and the markets had to adjust very quickly. Lenders almost couldn't price (mortgages) because of the volatility. We're not seeing that right now.”
However, if you are considering buying a home or need to remortgage, the advice is not to wait.
“Five-year fixed rates are still very cheap now, especially if you have a larger deposit,” said Aaron Strutt, director of property broker Trinity Financial. “If interest rates are going to rise in the short term and your mortgage is coming up (for renewal) in four months, it makes sense to take a new deal now and then potentially swap in for another if interest rates fall.”
Pensions
Those in their 20s and 30s who are still far from retirement have little to fear from bond turmoil — a blip in the long run when it comes to their money. Pensionssaid Sir Steve Webb, partner at pensions consultancy LCP and a former Liberal Democrat minister.
Seniors whose pensions are being “lifestyled” may want to pay close attention as they move their investments from stocks to bonds, said Ollie Cheng, senior director of financial planning at Rathbone Wealth Management.
However, Laith Khalaf, head of investment analysis at AJ Bell, said: “Unless you are fully weighted in long-term bonds, this is not the time to panic.”
The “best thing” those with a lot of exposure to long-term bonds can do is “try to leave the pot alone and, if possible, postpone the withdrawal,” Webb said. “What we've seen before is people panicking and selling what they have, crystallizing their losses. If it holds out, you don't know for how long or by how much, but bond prices could (rise again).”
Higher gold yields typically lead to lower pension prices, and with pensions subject to inheritance tax from 2027, the income guaranteed by pensions may look attractive to retirees.
“The problem with pensions is that you are committed to them for life,” Khalaf warned. It's good for producing a secure source of income, but that will completely disappear when you die. You can build in some protections but that will lower the rate you get.
Savings
Most experts say ripples in the bond market will have little direct impact on short-term savings rates, which are driven by the Bank of England's base rate, which is currently 4.75 per cent.
“The bond drama is unlikely to knock the savings market off its seat at the moment – it is not in the realm of knee-jerk reactions,” said Mark Hicks, head of active savings at investment platform Hargreaves Lansdowne. “If yields do not decline in the coming days, as the market fully digests the news out of the US, we may see expectations of interest rate cuts increasing further.”
Currency and FTSE index
Against the dollar, the pound fell in conjunction with the sell-off in government bonds, driven by uncertainty about the financial outlook in the United Kingdom and the threat of inflation. Definitions Under the incoming Trump administration in the United States.
A weaker pound means higher prices for those holidaying abroad, but it represents better news for British multinationals that make profits denominated in dollars. “At the moment, the weaker pound is providing a supportive force for the FTSE 100,” said Susanna Streeter, head of finance and markets at Hargreaves Lansdowne. “However, gains have been capped, with retailers such as M&S losing ground on concerns about the UK economic outlook.”
Additional reporting by Ian Smith
