Changes to tax rules announced by the chancellor could have a “significant impact” on household finances, including higher mortgage bills and a fall in pension pots, experts warned.

Rachel Reeves is set to relax fiscal rules, essentially allowing the government to borrow more money for public investment.

While insisting the change was “much needed”, Richard Carter, head of fixed rate research at Quilter Cheviot, warned: “Rachel Reeves’ proposed change to debt management could have a significant impact on personal finances, with effects on mortgages, pensions, and wider borrowing costs.”

Jeremy Hunt, the former chancellor, also criticized the decision and posted on social media: “The consistent advice I have received from Treasury officials has always been that higher borrowing means interest rates will be higher for longer – and they will punish families with mortgages”.

Mortgages can rises because more government spending, which this change could allow, could put upward pressure on inflation. As a result, interest rates may have to stay a bit higher for a while longer.

Because mortgage rates are affected by interest rates, they too could stay higher or even rise.

Read on

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Yields dictate the price of fixed rate mortgages, so we can see them rising slightly in the immediate future. If we have an announcement about it next week, it could mean a little more of the same.

“However, it is very unlikely to be anything like the kind of movement we saw following the mini-budget. It is more likely to be a small blip on an otherwise downward path for mortgages.”

But other experts believe there will be more cuts on the horizon.

Nick Mendes, of brokers John Charcol, said: “In the mortgage market, despite the recent rise, we can expect interest rates to continue their downward trend, with further cuts possible as the Bank of England moves towards more rate cuts interest.

“However, borrowers need to recognize that fixed mortgage rates are already reflecting many of the expected bank rate cuts over the next year and so I expect the best fixed mortgage rates to hit lows this year future, with 3 percent.”

Those with a remortgage looming may want to lock in a rate ahead of budget, as they can secure a cheaper deal now and switch if a better deal comes along in the future.

Another potential impact is on people’s pensions. This is because if the Government borrows more money, there is a possibility that this will cause their investments to perform worse.

Mr Carter added: “Pension funds could also feel the effects. Defined benefit schemes, which rely on constant bond yields to cover long-term liabilities, could find some stability in this higher yield environment, especially for those invested in government bonds.

“On the other hand, defined contribution pensions, more exposed to the wider market, may face slower growth as interest rate expectations weigh on stocks and other riskier assets. This could moderate the long-term growth potential of retirement savings, although it also depends on how markets adapt to these new fiscal policies.”

However, some experts said this is unlikely to happen.

Helen Morrisey, pensions spokeswoman at Hargreaves Lansdown, said: “The Chancellor is looking to limit the impact on markets by providing information about these plans in advance so there is no shock, as we saw after the mini-budget. This flow of information, together with IMF support, aims to keep markets stable.”

Tom Selby, director of public policy at AJ Bell, added: “Most people have defined contribution pensions invested globally, so they shouldn’t be materially affected one way or another by this. DB scheme annual rates and shortfalls are sensitive to interest rate movements, but again it is impossible to be sure whether a change in tax rules will move the dial one way or the other, if at all.”

Pensioners are advised not to make rash decisions with their money before budgeting and to get professional advice before moving their funds.