Master Your Finances During Economic Uncertainty: From Savings to Mortgages Explained

In light of these changes, a survey in the UK highlighted growing anxieties among consumers regarding a decelerating economy, potential tax hikes in upcoming budgets, and escalating food prices. We consulted several financial experts to discuss strategies for managing money amidst these uncertainties.

Investments

Global stock markets, particularly in the US, experienced significant volatility earlier this year due to Donald Trump’s trade policies. While the situation has stabilized somewhat, future market shocks remain unpredictable.

For those invested in stocks and shares, perhaps through an Isa or pension, it’s been a tense time monitoring investments. UK investment managers have notably increased their stakes in US corporations, driven largely by the surge in technology stocks, meaning that shifts in the US market can strongly impact UK investments.

Despite the urge to react quickly to market news, financial analyst Dan Coatsworth of AJ Bell advises against hasty decisions to sell off investments. He emphasizes the resilience of markets, which historically have recovered over time, suggesting that patience is crucial.

Coatsworth notes that this strategy might differ for those needing funds in the short term, for goals like weddings or home purchases. In such cases, evaluating the level of risk in your investment is key.

Andrew Oxlade from Fidelity International suggests possibly reallocating some investments from stocks to bonds, which are generally considered safer. Bonds involve lending money to an entity in exchange for fixed periodic payments.

Gold, traditionally a refuge in times of crisis, has seen its value triple over the past decade. According to Oxlade, many now include gold in their portfolios, often through exchange-traded funds that follow the price of gold, rather than holding physical gold.

Mortgages

Interest rates in the UK, influenced by global events, have fluctuated significantly. The Bank of England, aiming to control inflation, raised rates from 0.25% at the beginning of 2022 to 5.25% by August 2023, maintaining this rate for a year.

With rates expected to drop, those seeking new mortgages face choices between fixed, tracker, or variable rates. The most competitive fixed deals currently hover just below 4%.

According to Nick Mendes from John Charcol brokers, mortgage rates are primarily influenced by swap rates, which reflect market expectations of future interest rates, rather than current rates.

Mendes warns against relying on a lender’s standard variable rate (SVR) in anticipation of better deals, as these rates, around 6.5%, can increase unexpectedly. He recommends considering tracker mortgages, which are linked to the Bank of England’s base rate and can offer more flexibility.

For those remortgaging, Mendes advises securing a deal up to six months in advance to protect against rate fluctuations. This strategy allows locking in a favorable rate while retaining the option to switch if better rates appear.

For new homebuyers, he emphasizes affordability over speculative future rate drops to avoid financial overreach.

It’s also possible to switch deals prior to completion if a better rate becomes available.

Savings

Savings rates might decrease even before an official rate cut, as banks adjust their offerings based on the deposit levels they aim to maintain, explains Rachel Springall of Moneyfacts.

Currently, competitive rates are available for both easy access and fixed-term accounts. Cynergy Bank offers attractive rates for one- and two-year bonds, while Chase provides a notable 5% on an easy access account, albeit with a 12-month bonus and variable interest.

Anna Bowes from The Private Office advises savers to consider locking in these rates, especially if they haven’t actively managed their savings recently, to capitalize on the competitive market.

Pensions

The volatility in stock markets, especially in the US, directly impacts many UK pensions, which often invest heavily in US equities. Helen Morrissey of Hargreaves Lansdown suggests that unless you’re nearing retirement, it’s wise to resist the impulse to shift pension investments to perceived safer assets like bonds.

She emphasizes the importance of maintaining a long-term perspective, as markets tend to recover. For those close to retirement, she advises adjusting the withdrawal amounts to allow the fund to recuperate from any downturns.

Morrissey also recommends keeping a few years’ worth of essential expenses in an accessible account to navigate through market lows without needing to withdraw from the pension fund.

Another retirement strategy could involve purchasing an annuity to secure a steady income, with current rates offering favorable returns.

Energy bills

Approximately 21 million households are set to benefit from a reduction in energy bills following a decrease in the price cap. However, this relief might be short-lived with anticipated rises later in the year.

Following geopolitical tensions in the Middle East, oil prices spiked but later stabilized after a ceasefire agreement. This volatility makes future pricing uncertain, explains Will Owen from Uswitch.

To hedge against potential increases, consumers might consider locking in a fixed-rate energy tariff. MoneySavingExpert suggests that deals priced at least 5% below the current cap are likely to offer savings.

The best current fixed-rate deals, according to the site, include offers from E.ON Next, Outfox Energy, and EDF Energy, all offering rates significantly below the cap.