What a week. Recent news has been hard to hear and tougher to follow so we’ve broken down the headlines and what it could mean for you.
1. We’re in recession
The Bank of England officially announced the UK is in recession and raised interest rates by 0.50% in another bid to tackle soaring inflation.
For mortgage holders this may feel like a gut-punch. Ditto for new buyers as several UK lenders have now announced they’ve suspended new mortgage offers while the situation’s in flux.
1. What happens when my mortgage deal ends?
If your current mortgage agreement is due to expire soon*, your interest rate (and therefore repayments) will probably increase when you renew.
2. What can I do?
*Even if you’re eight or nine months out from renewal, it’s worth starting to look for a new deal now. For one, lenders are busy so it may take longer than usual to get something secured. And for two, mortgage offers are typically valid for six months, so that should line up with your expiry.
Although going through your current lender may be easier, it’s always worth speaking to an independent mortgage adviser to explore all your options.
Also please note that if you decide to exit your mortgage, early check for penalty. Those fees could wipe out the savings of your next deal so have to be taken into account.
3. A practical move you can make
To acclimatise and get ready for higher monthly payments, you can start to overpay on your current mortgage. So this and you can put a new budget to work.
2. The mini budget
The news agenda bubbled over the weekend after the new Chancellor’s mini budget dropped. To say that reaction was mixed is an understatement.
When the GB Pound fell to an all-time low against the US Dollar, we got a real and dramatic sense of how wider world markets view Kwasi Kwarteng’s plan. Just yesterday the International Monetary Fund voiced its concerns and, in a somewhat unprecedented move, urged the UK government to rethink.
What does a falling pound mean for me?
In the short term, a weak pound will (further) push up the cost of imported goods and services. Foreign goods in general will cost more, and your money won’t go as far if you travel to countries that use the US Dollar. There may be knock-ons for energy costs too as it’s a market that’s primarily priced in dollars.
If you have investments you’ll have likely seen them slide in value. Instinct might tell you to pull your money but we’d suggest you sit on your hands. If you don’t need the money – do nothing.
Market falls are more normal than we think. The nature of the bad news might change but investor reaction is always the same.
Mini budget at-a-glance
Given the backlash and IMF intervention, further news may come in the next days and weeks. Nonetheless, here are the key mini budget takeaways, as it stands today.
- Income tax changes (starting April 2023): basic rate tax will reduce to 19%, leaving just one higher rate tax band of 40%, with the 45% top rate scrapped.
- Stamp duty limit raised to £250,000 in general, and £425,000 for first time buyers.
- The 1.25% increase in National Insurance will be reversed from November 6th.
- The planned corporation tax rise is cancelled.
- The cap on bankers’ bonuses is gone.
- There are more incentives to invest in new businesses.
- Benefits sanctions will hit for those who don’t meet job search commitments.
- Duty on wine, beer, cider and spirits cancelled.
Worried?
You’re not alone. As we’ve said in previous emails, it’s super easy to feel you’ve no control given what’s going on in the country and the world right now.
But when it comes to your money, you do have more autonomy than you think. To understand how recent money news affects you then it’s best to talk to an adviser.
Stay with Money Means too. We’re here to help and by now you know where to find us. Throw us a social follow for helpful money content, and get in touch directly with your questions at hello@moneymeans.co.uk.