Is my retirement secure and will mortgage rates go down? What to do in the current crisis | consumer affairs

What does economic uncertainty mean for house prices?
Housing prices are expected to fall next year, but by how much is not yet known. Credit Suisse has warned there could be a 10% to 15% drop next year, while Self Employed Mortgage Hub’s Graham Cox predicts a 20% drop over two to three years.

Will rents also go up?
Rents have already started to rise and are expected to rise in the coming months, due to housing shortages in cities like London and Manchester, rather than – for now – a direct impact from rising mortgage rates. However, if potential buyers continue to rent because they cannot access the housing ladder, this additional demand could put additional pressure on private rental prices.

Landlords could also be forced out of London and the South East, where mortgage rates are higher than yields, to invest in properties further north, potentially boosting rental price growth in the capital, David said. Fell, principal analyst at Hamptons, said.

Should I wait to buy?
Buyers who have secured a cheap mortgage are likely to continue with the move, although there is a risk that property prices will fall in 2023. Those who have not secured a mortgage could pause for a some time,” says Richard Donnell, Executive Director. of research and insight at Zoopla. “If we see the political environment calm down, mortgage rates could fall back fairly quickly, but not to the levels we saw last year – 2% mortgage rates will be a thing of the past,” he says.

What is likely to happen to mortgage rates?
Hopes that calmer market conditions will drive rates down have so far failed to materialize and the Bank of England’s chief economist said he saw the need for a ‘significant’ hike rates in November. David Hollingworth, of broker L&C Mortgages, says that while mortgage providers are reassured in the near future by the new chancellor, it could take time to be reflected in rates. “We continue to see lenders withdrawing products without notice, replacing them with higher rates in an effort to stem the flow of new enquiries.”

pensions

When we hear that pensions are boiling over, which pensions are we talking about?
The Bank of England has deployed billions of pounds to buy government bonds in a bid to calm things down after the mini-budget sparked panic selling by pension funds – but that refers to a type individual pension. “Defined benefit” – or “end-of-career salary” – pension funds that used a retirement investing strategy known as liability-driven investing (LDI).

This does not mean state pension. And that doesn’t mean “defined contribution” — or defined contribution — pension plans. Most occupational pension schemes and all individual pension schemes are defined contribution schemes.

This particular issue does not affect nearly all public sector direct benefit pension plans, the majority of which are “unfunded”, meaning that retirement income is paid for by taxes and not by investments. says Tom Selby, head of retirement policy at investment platform AJ Bell.

Is my retirement secure?
With direct benefit schemes, employers are ultimately responsible for making up any shortfall. “This is a problem for your employer to solve, not you,” says Sarah Coles, senior personal finance analyst at investment platform Hargreaves Lansdown. Selby adds that “provided the sponsoring employer remains in business, you should receive the pension you have been promised”.

Even if the worst happened and an employer went bankrupt and could no longer support their scheme, the official Pension Protection Fund would step in and pay compensation (either 100% or 90% of income).

For defined contribution plans, which put money into things like stocks, bonds, real estate and cash, markets have fallen lately and, says Selby, so those who participate in Defined contribution schemes with large holdings of UK government bonds will have seen the value of their funds plummet.

Any good news?
When interest rates rise, retirement annuity rates also rise, and they are now at a 13-year high, translating into much higher retirement income than a year or two ago. An annuity is one of the products you can purchase with your accumulated retirement pool, and it provides you with guaranteed regular retirement income for the rest of your life, or for a fixed term. At the start of this year, a pot of £100,000 would have bought a 65-year-old man a non-increasing annuity income of £4,950 a year, but today it would be around £7,190, says Hargreaves Lansdown .

Savings and investments

Interest rates are on the rise, so I’m finally making some money, aren’t I?
It should follow that when interest rates rise, savings rates also rise, but this is not always the case as lenders either do not pass on the full increase or take months to do so. . It’s possible to get 5% interest because Atom Bank launched a paid account last week, but you have to lock in your money for five years to get that rate. Any gain in the savings rate must be seen in the context of rising inflation, which is eating away at the value of people’s money.

What happened to my shares and ISA shares? Should I stick to it?
Last year saw stocks plunge. “In 2022, there was nowhere to hide,” says Jason Hollands of Bestinvest. “Global stocks and global bonds fell sharply in tandem.” So should you try to stop the losses from a stock and equity ISA by moving it somewhere else? It rarely makes sense to panic sell, Hollands says. “Although the outlook for the UK economy is difficult, do not confuse the UK stock market with the national economy. Around three-quarters of the profits of FTSE 100 companies are made overseas, much of it in US dollars and so, as these profits are converted back into pounds, this should provide a small boost.