Will a coalition government mean mortgage rate rises?

A hung parliament could mean uncertainty for stock markets and interest rates, but it may not be a disaster for your finances

the bookmaker William Hill this week quoted odds of 4/6 that there will be a hung parliament after next Thursday's election. Spokesman Graham Sharpe said: "Our hung parliament odds are now the shortest offered in the history of political betting. Punters are backing it as though the votes had already been cast and counted."

As election day has neared, the chances of a hung parliament have appeared to increase. Politicians may not welcome the prospect, but how would it affect your finances?

There are fears it could lead to the collapse of sterling and rising interest rates, which would in turn make mortgages more expensive. But that eventuality may have already have been factored into rates, according to Drew Wotherspoon of the broker John Charcol.

"With a hung parliament increasingly looking like a viable outcome in the general election, some of the perceived risk has already filtered through to the money markets, in the form of higher pricing. If there is no clear election winner, it seems probable that Swap rates will increase and this could be by anything up to 0.5 per cent. But with more lenders using savings to fund their mortgage books, they may pull their products and then adopt a wait-and-see approach rather than a straight increase in rates."

It's the uncertainly that a hung parliament could produce that would be the biggest potential problem, says Melanie Bien of Savills Private Finance. "The money markets don't like uncertainty and are likely to react badly if the deficit is not cut. This could push up interest rates, making loans more expensive."

One way to hedge against the uncertainty is to fix, says Bien. "If borrowers are worried, they should consider a fixed rate as this will protect them from rate rises. If you are coming to the end of a mortgage deal in the next few weeks or months, you can book a rate now; when you come to remortgage you can decide whether to take it out or opt for another fix or a tracker, if the threat of rate rises has rescinded."

However anyone doing so should be wary of non-refundable booking fees. A number of lenders, such as Lloyds TSB, charge a small non-refundable fee of £99, while others may insist that you pay the full arrangement fee upfront, which could mean losing hundreds of pounds if you change your mind.

Martin Bamford, of the financial planners Informed Choice, points out that a hung parliament itself is unlikely to have a major impact on personal finances. "It will be the actions taken by a coalition government, assuming one can be formed, that will be make or break," he says. "As long as whoever is in power takes decisive steps to reduce the national debt, the bond markets should respond positively. If there is a delay to these important decisions, or minority parties hold the government to ransom to further their own agenda, this could be disastrous for the markets, exchange rate and personal investors."

Ian Spreadbury, manager of Fidelity's Strategic Bond Fund, says that as long as whoever ends up in power makes moves to reduce debt post-election, it is unlikely to be the disaster for markets that some predict. "In the event of a hung parliament we would have some form of power-sharing involving the Liberal Democrats. Their attitude to tackling the deficit is quite robust and so I don't think it would be disaster for the markets; in fact it is already partly discounted. However, I do think there could be some modest upward pressure on yields to reflect concern that it may be difficult to get a consensus on the tough decisions that would need to be made."

Malcolm Cuthbert, partner at Killik & Co, says the big question is who will be Chancellor of the Exchequer in a coalition government. "We saw in the New Labour government how powerful Gordon Brown was as Chancellor and this could be part of a deal between either the Tories and Liberal Democrats or Labour and the Liberal Democrats.

"In both cases this might well mean that Vince Cable would be Chancellor. If so, he will push through with some of his favourite policies, such as no income tax for those earning less than £10,000 and removing higher rate tax relief on pension contributions." He may also look to re-link the basic state pension to earnings and introduce a "mansion tax" on property valued at over £2m.

But a hung parliament could also mean that the personal finance measures introduced by Labour in their previous Budget statements would be here to stay for some time, says Bamford. "That includes the new highest rate of income tax at 50 per cent and next year's national insurance hike."

i100 In this video, the late actor Leonard Nimoy explains how he decided to use the gesture for his character
Arts and Entertainment
Secrets of JK Rowling's Harry Potter workings have been revealed in a new bibliography
arts + ents
Down-to-earth: Winstone isn't one for considering his 'legacy'
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: HR Benefits Manager

    £40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

    Recruitment Genius: Office Manager / Financial Services

    £30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

    Jemma Gent: Year End Accountant

    £250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

    Jemma Gent: Management Accountant

    £230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

    Day In a Page

    HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

    Scientists hail daily pill that protects against HIV infection

    Breakthrough in battle against global scourge – but will the NHS pay for it?
    How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

    Time to play God

    Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
    MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

    MacGyver returns, but with a difference

    Handyman hero of classic 1980s TV series to be recast as a woman
    Tunnel renaissance: Why cities are hiding roads down in the ground

    Tunnel renaissance

    Why cities are hiding roads underground
    'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

    Boys to men

    The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
    Crufts 2015: Should foreign dogs be allowed to compete?

    Crufts 2015

    Should foreign dogs be allowed to compete?
    10 best projectors

    How to make your home cinema more cinematic: 10 best projectors

    Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
    Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

    Manchester City vs Barcelona player ratings

    Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
    Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

    Monaco: the making of Wenger

    Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
    Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

    Chris Gayle: The West Indies' enigma

    Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
    In Ukraine a dark world of hybrid warfare and murky loyalties prevails

    In Ukraine a dark world of hybrid warfare

    This war in the shadows has been going on since the fall of Mr Yanukovych
    'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

    Homage or plagiarism?

    'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
    Broadchurch ends as damp squib not even David Tennant can revive

    A damp squib not even David Tennant can revive

    Broadchurch, Series 2 finale, review
    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

    Inside the mansion of Germany's 'Bishop of Bling'

    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower