Chancellor Rachel Reeves has unveiled a series of reforms to UK financial services. Here’s how they could affect your finances.
The Chancellor, Rachel Reeves, announced on 15 July a sweeping package of reforms to financial services called the ‘Leeds Reforms’ (based on Reeves’s parliamentary constituency of Leeds West and Pudsey).
The reforms are a wide-ranging package of measures designed to make it easier for financial services to grow and prosper in the UK. They are widely seen as a significant reset after many years of tighter control after the 2008 Great Financial Crisis.
The most high-profile measure will not affect the immediate day-to-day finances of the public, but may change the way financial services firms work and interact with customers.
These come chiefly in three areas: banking, mortgages and investing. Here we break down how these might affect your money.
Banking
The Government plans to make changes to how banks are allowed to use customer money. Currently banks with over £25 billion in customer deposits are prevented from using customer money to invest in global markets. This is so-called ‘ringfencing’ of deposits.
Major banks such as Santander have criticised the level of ringfencing, as it argues this hampers growth and opportunities for the bank to invest. As a result, the Chancellor is increasing the limit to £40 billion.
Mortgages
The reforms will allow banks to ease their mortgage lending criteria – something which has been accused of making it harder for first-time buyers to get on the property ladder.
Banks will be allowed to offer more mortgages at higher loan-to-income ratios. This means people will be able to borrow more to buy a home with less income.
The Chancellor also announced that the Government would be making the 5% first-time buyer mortgage deposit guarantee scheme permanent. Banks are reluctant to lend to buyers with smaller deposits as they are seen as a higher risk.
This scheme sees the Government essentially guarantee the mortgages that are given to first-time buyers with only a 5% loan-to-value deposit, in effect taking on the risk the banks are concerned about.
Investing and savings
The Chancellor has for now backed away from decreasing the ISA cash limit after building societies warned it would create issues in terms of their ability to lend mortgages.
Reeves had said the cut to the limit was designed to encourage more people into investing. Instead, the Government says it is going to work to encourage more people to invest their savings through awareness campaigns.
Banks and investment platforms from next year will be able to flag specific investments opportunities to customers, through what the Government is calling “targeted support”.
It also plans to review risk warnings on investments to ascertain if this dissuades people from investing their money.
ISA reform is not off the table however, but appears for now to be back on the drawing board.
While these reforms are being done with the best intentions, it is essential to remember that investing is best done over the long-term, with considerations given to the best asset classes, tax efficiency and your ultimate goals for your finances.
A financial planner is best placed to help you on this journey to ensure that a financial plan is given the best opportunity possible for long-term growth, income you’re your intended retirement outcomes.
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