Mansion House speech: what it means for your money

What changes to our personal finances did Rachel Reeves announce?

The Mansion House speech is usually where the Chancellor of the Exchequer announces changes to the financial sector and bigger regulatory reforms to a room full of senior bankers and bosses.

This year there was plenty of speculation over what could be announced – as well as the inevitable leaks! For many the big concern in the run up was a potential cut to the Cash ISA allowance.

This year, the package of reforms were all about encouraging growth. 

Here are the biggest changes Rachel Reeves announced that could affect your personal finances.

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Banks will encourage low-interest savers to invest

If you’ve got cash sat in a low-interest savings account, you can expect your bank to send you investment opportunities. The Government has made plenty of statements that suggest it wants more people to invest their money, and it appears to have got banks on board. 

Major financial institutions, including high street banks Barclays, NatWest and HSBC, are backing an advertising campaign designed to highlight the benefits of investing for savers who are in a position to do so.

According to the Government, moving £2,000 from low-interest accounts to stocks and shares could make millions of people over £9,000 better off in 20 years’ time. 

Of course, with investing, it’s important to understand the risks and that your money could lose value as well as gain it. And you could end up with less than you put it.

We’ve covered the basics of investing for beginners and more on our investing hub.

First time buyers can borrow more

Last week the Bank of England rolled out looser mortgage rules designed to help more first time buyers get on the property ladder – which was confirmed by Rachel Reeves last night.

The Bank will allow more people to borrow over 4.5 times their income, which is typical, which could help an extra 36,000 buyers purchase a home over its first year. 

From 16 July, Nationwide’s lowering the income threshold for its Helping Hand mortgage, which it says will help an extra 10,000 first time buyers.

From today first time buyers with a £30,000 salary can apply for the mortgage, which lends up to six times someone’s income, instead of £35,000, while joint applicants can have a combined income of £50,000 rather than £55,000.

As per the Chancellor’s speech, we can also expect simplified mortgage lending rules to be considered by the City watchdog, the Financial Conduct Authority, to come into play which will make it easier for existing homeowners to remortgage. 

Plus, the Government is also introducing a permanent Mortgage Guarantee Scheme. The previous scheme ended last month but the new one will start this month promising to help  more people buy a home with a 5% deposit. As per the scheme, participating lenders must offer 95% mortgages. 

Simplifying the Financial Ombudsman Service

The free dispute resolution service, the Financial Ombudsman Service (FOS), will be ‘returned to its original purpose as a simple, impartial dispute resolution service which quickly and effectively deals with complaints against financial service firms instead of acting as a quasi-regulator’. 

However, with the little detail that’s been announced so far, one change isn’t going to benefit customers who complain. Currently, the FOS pays an 8% compensation rate, which is designed to put people back in the position they were in before they were let down by the firm. 

But this is now being reduced to the base rate plus 1%. So based on the current interest rate, that’ll be 5.25%, which is significantly lower and not particularly fair.

No changes to Cash ISAs – for now

After months of speculation about the Cash ISA allowance being cut (to as low as £4,000 according to some reports), days before the Mansion House speech, the Government reportedly u-turned on this decision.

At the moment, the ISA allowance is £20,000 a year – and you can split this however you like between cash and investments. 

As part of the plan to encourage more savers to invest, the Government were planning to review the ISA market in general, with suggestions they’d limit how much savers could put into Cash ISAs. 

Here at Be Clever With Your Cash, we thought this was a terrible idea. Yes, investing can be a really effective way to grow your wealth and it’s a good idea to consider it, alongside your cash savings, pension and other pots. However, there are still plenty of barriers to getting people to invest. 

Our own research suggested that 66% of people with excess savings have chosen to not open a Stocks & Shares ISA. This is due to concern about losing money (45%), while 28% say they don’t understand how they work.

Cutting the Cash ISA limit isn’t going to suddenly propel nervous and unsure savers into investing – it just won’t happen. We know investing is a good idea for many people over the long-term but it’s clear we need more guidance and education to help people feel more confident about how it works.

The good news is, the cut to the Cash ISA allowance is off the cards for now. But it doesn’t mean it or something similar won’t be announced later this year.Rachel Reeves said the Government “will continue to consider further changes to ISAs”. So watch this space!

In the meantime, make sure you’re getting the best rate on your Cash ISA.

Important

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