Consumers face a bleak outlook for their borrowing and investing as a UK debt market sales which has deepened since the new year.

Yields for UK government bonds, or gilts, along with US Treasuries and other sovereign bonds, have risen as investors expect interest rates to remain higher due to to the greater than expected inflation.

That was compounded by investor anxiety over higher borrowing from the October Budget and fears that the UK could enter a period of stagflation, where persistently rising prices prevent the Bank of England from cutting interest rates. interest to develop the economy. The sell-off took the 10-year gilt yield from 3.75 percent in mid-September to a high of 4.93 percent on Thursday.

FT Money explores what it all means for your finances.

Debts

The biggest impact of the sale will be on those looking to remortgage or buy a home in the coming months, as fixed-rate debts driven by market expectations of where interest rates may be headed.

Swap rates, which track these expectations and are used by lenders to price their fixed-rate products, rose sharply from just under 4 percent in mid-September to more than 4.5 percent this week.

So far, the sales reaction has been limited. “We’re starting to see it feed into the narrative . . . We have already seen fixed-rate mortgages increase slightly, but nothing radical has changed in the last few days,” said David Hollingworth, director of mortgage broker L&C.

The average two-year fixed rate yield fell one basis point last week to 5.47 percent, while the average five-year rate rose one basis point to 5.25 percent, according to of Moneyfacts, a financial data company.

“We are a complete world away from the mini-Budget,” Hollingworth said, referring to the Truss government’s fiscal 2022 statement, which pushed for a sharp rise in borrowing costs and then hit the loan rate. “The mini-Budget came out of the blue and the markets had to adjust quickly. Lenders could hardly price (loans) because of the volatility. We haven’t seen it yet.”

That said, if you’re thinking about buying a home or needing to remortgage, the advice is not to hang around.

“Five-year fixed rates are still relatively cheap now, especially if you have a bigger deposit,” said Aaron Strutt, director of mortgage broker Trinity Financial. “If prices go up in the short term and your loan (for renewal) comes up in four months’ time, it makes sense to get a new deal now and then maybe switch to another one if the price will go down.”

Pensions

Those in their 20s and 30s and far from retirement have little to fear from bond turmoil — a long-term blowout when it comes to their pensionssaid Sir Steve Webb, partner at LCP pensions consultancy and former Liberal Democrat minister.

But older people whose pensions are “styled for life” may want to pay more attention, as their investments are being shifted away from equities and into bonds, said Olly Cheng, senior director of financial planning by wealth manager Rathbone.

However, “unless you’re fully loaded with long-term bonds, it’s not time to panic”, says Laith Khalaf, head of investment analysis at AJ Bell.

The “best thing” those with large long-term bond exposures can do is “try to leave the pot alone and, if possible, stop the withdrawal,” Webb said. “What we’ve seen before is that people get scared and sell what they’ve got, which crystallizes their losses. If you continue, you don’t know how long or how much, but those bond prices can (come back).”

Higher gilt yields typically result in lower annuity prices and with pensions subject to inheritance tax from 2027, the income guaranteed by annuities will be attractive for retirees.

Khalaf warns: “The problem with annuities is that you lock them in for life. They’re good for creating a secure stream of income, but that disappears completely when you die. You can build up some protections but that will lower the rate you get.

Savings

Most experts say that the ripples in the bond market will have little direct impact on savings rates in the short term, driven by the base rate set by the Bank of England, which is currently at 4.75 percent.

“The bond drama is unlikely to get the savings market off its perch at the moment – it’s not a knee-jerk reaction business,” said Mark Hicks, head of active savings at investment platform Hargreaves Lansdown. “If yields do not fall in the coming days, as the market more fully digests the news from the US, we may see expectations for further rate cuts.”

Currency and the FTSE

Against the dollar, the pound fell alongside the gilt sell-off, driven by uncertainty over the UK’s fiscal outlook and the threat of inflation tariffs under the incoming Trump administration in the US.

A weaker pound means higher prices for holidaymakers abroad, but better news for British multinational companies with dollar-denominated revenues. “At the moment, the weaker pound is providing a tailwind for the FTSE 100,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown. “However, gains have been constrained, with retailers such as M&S losing ground due to concerns about the UK’s economic outlook.”

Additional reporting by Ian Smith