Ten years on from the beginning of the financial crisis that nearly brought the Western world to its financial knees, we have a lot to be grateful for.
Although jobs were lost in the City, and a multitude of banks and building societies had to be rescued either by us as taxpayers or stronger rivals, it could have been much worse. There was no housing crash, no wave of mass unemployment, the stock market muddled along and most people’s household finances remained intact.
Of course, rock-bottom interest rates have not been to everyone’s liking – savers especially – but without them I dread to think what would have happened. Certainly, home repossessions would not be at the record low they currently are.
Yet just because the UK economy has survived the financial traumas of 2007 and 2008 does not mean that we are out of the woods. Far from it.
Personal debt, fuelled by low interest rates, has soared to worrying levels. Inflation, inflamed by a weak pound, will not go away and at some stage the Bank of England will sanction an interest rate hike. Once it pulls the trigger, further rate rises will surely follow as the Bank seeks to return interest rates to more normal levels. Great news for savers – provided banks and building societies do the decent thing and push up rates – but potentially catastrophic for those sitting on lots of debt.
Also, we have all the uncertainty that the journey towards Brexit in March 2019 is engendering. As that date gets ever closer and there is no evidence of a deal (or the right deal) being clinched, business confidence could take a knock, jobs could be lost and the stock market might become un-nerved, impacting on the value of our individual savings accounts (Isas) and precious pensions.
Last but not least, we cannot rule out both geopolitical and political risks – war in the Korean peninsula, or a change of government at home because of Prime Minister Theresa May being unable to keep her party united. These are factors that could unhinge stock markets or in the case of a Labour government herald a dramatic change in the taxation of the so called ‘Middle Englanders’.
All a little worrying. But there are three financial steps you can take to protect your household finances in case the UK economy lurches to a halt or if interest rates rise. Control over your mortgage – the biggest monthly outlay for most people – is key. According to recent research by Yorkshire Building Society, some £35 billion of home loans come up for renewal in September and October as special deals (a discounted or fixed rate, for example) come to an end. It is the biggest two-monthly chunk of home loans up for re-mortgaging since 2012.
If you are one of these homeowners, take out a competitively priced fixed-rate mortgage while you can. Preferably for five years, not two, thereby giving you financial certainty over your biggest debt.
I would be surprised if the deal you lock into is not a better rate than you are currently paying – rates are about as low as they will go and you should also have more equity in your home this time around, entitling you to a more attractive rate than those with less equity. My home loan renewal is in November and I am chomping at the bit to lock into a fixed-rate deal.
If you cannot remortgage – maybe because your deal includes early redemption penalties, consider making mortgage overpayments if your terms allow this. Paying down your loan while interest rates are low makes sense – for some, better sense than saving in a deposit account with miserly interest.
I would also urge you to review all your utility providers – gas, electricity, broadband and phone – to see if you can squeeze out a better price or tariff. The same with insurance – shopping around rather than staying loyal invariably pays off.
Finally, on the savings side I would put as much money as you possibly can afford into your pension – a work scheme if you are employed or a personal plan (or self-invested personal pension or Sipp) if self-employed.
The tax relief available on pension contributions is too good an opportunity to miss. For every £100 a basic-rate taxpayer sees going into their work pension every month, 20% – £20 – will be provided by the government in the form of tax relief. Such tax relief – which is even more generous for higher- and additional-rate taxpayers – will not be available for ever. So, take advantage while you can. Good luck. Batten down the hatches.
Jeff Prestridge is the personal finance editor of The Mail on Sunday. He won then Contribution to Personal Finance Education category at the Santander Media Awards 2016. Email him at firstname.lastname@example.org.
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