What does more political chaos mean for your money and the economy?

0:03Lee Boyce: Welcome to This Is Money podcast sponsored by Trading 212. Download the Trading 212 app and open a cash ISA with promo code TIM to get the 12 month bonus promo rate of 4.51%. Terms apply. I'm Georgie Frost and joining me and Simon Lambert today is Lee Boyce. And coming up, they say a week is a long time in politics and what a week it's been. But what does all the turmoil mean for our money? And can we blame it all on Labour? Also today, the premium bond prize rate is to rise from July as NS &I also improves its odds of winning. So is Granny's favourite. Granny's favourite once more. Plus, Lloyd's launches a first-time buyer mortgage needing just a£5 ,000 deposit.

0:47Lee Boyce: Is it a good way to get on the property ladder, though? And are you a cash prepper? Don't forget to start with all the latest breaking money news. Just go to thisismoney.co.uk or download the app. But first, markets are jittery again, guilt yields are climbing and mortgage worries are creeping back in. So what's driving it? How much is down to the turmoil in the Labour Party? And what does it ultimately all mean for our money? Simon Lee, welcome Simon. We had a bit of a text exchange the other day, didn't we? Where I was explaining I am currently out in Canada and I was at a pub And on the screen was a large feature on UK politics.

1:29Lee Boyce: It is making the headlines here. Third most important story in their national newspaper. What on earth have I missed since being out here since Monday, I think it was?

1:41Simon Lambert: What you've missed is the decision of the government to return to chaos. Do you remember the chaos we had under the Tories? that Labour said that they were going to end. They were going to end the psychodrama. I think psychodrama is their own word that they kept banging on about. Well, they decided that actually they weren't going to do that. And instead they were going to indulge in a bit more political infighting, potentially deposing a prime minister. Because I think everybody in this country has looked at the current political situation and the political situation over the last decade and gone, do you know what?

2:16Simon Lambert: We should change prime minister more often. And we should definitely have more prime ministers that people didn't actually vote for. So Labour's looked at it and it's gone, hmm, yeah, well, you know, I know we said we were going to change, but wasn't it more fun with the mad stuff we did before? And so they've decided to do that. I was thinking about this the other day. I was no fan of the previous Tory government. I thought that they managed to display a level of incompetency that I prefer not to see in a government. And although I didn't vote for this Labour government, I did think that, you know what, I had a bit of optimism when they came in because all they needed to do was basically just be competent.

2:56Simon Lambert: And the Tories had set quite a low bar. And Labour have spectacularly failed to clear that bar. And what I was thinking about the other day was that basically this is almost unforgivable what they have done because the Tories at least had an excuse. So Brexit. it. Now, arguably, obviously, that particular psychodrama was the Tories' fault because David Cameron foolishly decided to have a vote on leaving the EU. And there will be people listening to this who are bloody glad that we left the EU and bloody glad that we had that vote. But I think that many people, whether they voted leave or remain, would say that the entire process and episode in British life was not one that would be considered our finest hour.

3:47Simon Lambert: The Tories had that excuse where they not only did they had the Brexit vote, but then they had to try to implement it, right, which was an almost impossible task to do. And what it turned out after that vote was won by the leave camp was there wasn't really a plan for what was going to happen next. Then they had COVID setting aside a certain prime minister's predilection for breaking his own rules and his party's predilection for breaking their own rules, right? A global pandemic that involved unprecedented lockdowns where you weren't allowed to leave your house is a reasonable excuse for ending up with a load of political drama, okay?

4:25Simon Lambert: So you've got those two seismic things in a very short period of time, which may be considered a reasonable excuse, right, for ending up with all the political infighting and going through prime ministers like it was nobody's business and chancellors like it was definitely nobody's business, added to which the fact that one of those Tory governments that was elected had practically no majority whatsoever, the Theresa May one that Boris Johnson then inherited and then he went to the polls himself, right? Labour, on the other hand, had a thumping majority, stood on a platform of not being as mad as the last lot and being competent.

5:07Simon Lambert: And within two years, the party is trying to depose its own prime minister who won that election, right? He's not the most convincing of prime ministers. He's not the greatest prime minister I've ever seen. But he is the man that was elected less than two years ago, with a thumping great majority. And now you've got people left, right and centre, or I should say left, left and a bit more left, arguing about who's going to be in charge the bond markets are going yeah do you know what actually we didn't like this stuff first time around we don't like it second time around either we're going to talk about the moron premium in a bit and whether it's back right but even if you just forget that stuff right because bond markets swing around and stuff and not all of this is Labour's fault it's like we're at quite an important point right now in what's going on in the world and what's going on in the country and we're two years into a government that said it was going to change stuff and has resolutely not managed to quite do that but has at least put some stuff in place and i also don't think that we should be changing prime ministers without going back for another general election i would actually like to see that made either part of the rules or part of people's manifestos that they will not change prime minister without going back for another uh election so what on earth they think they're doing i am absolutely baffled by i don't care whether they want the king of the north or angela rayner or Wes Streeting or whoever in charge, right?

6:33Simon Lambert: We've got the Prime Minister that people voted for less than two years ago and that's the Prime Minister we should continue to have because we tried the other stuff and we didn't like it.

6:43Lee Boyce: OK, fair enough. So basically, get a bloody grip. What I keep seeing is reset. Reset after reset. I think we were on our fourth, aren't we, in two years? It seems a lot of resets, to be honest, doesn't it?

6:56Simon Lambert: it's like someone talking to the IT department just the IT department's only answer is turn it

7:03Lee Boyce: off and turn it on again which sometimes really works you know but not every time I'd suggest um Lee Simon there spoke about the bond market what do we mean when we talk about the bond market and what do we mean in this context here yeah when we're talking about the bond market

7:20Georgie Frost: Georgia we're talking about gilts we're talking about loans that are made to the UK government The yield is the return and investor gets on that loan. And they are spiking all over the shop at the moment. And they came into a lot of kind of focus with the Liz Trust premiership when they kind of spiked all over the shop. And then a couple of weeks later, she was gone and markets went mad. So that's why it's kind of more into our kind of psyche now, I think, as a British public. And we are seeing headlines like gilt yields heading to highs not seen since the financial crisis. going beyond that. And the Andy Burnham kind of tilt for the premiership that's going on at the moment has made the spike even further at the time of recording this podcast because they don't like the uncertainty.

8:09Georgie Frost: A, the uncertainty of potentially a prime minister not being a prime minister anymore. They don't like the uncertainty of potentially a whole new raft of measures coming into place that can mean big things happening to our personal finances. And Andy Burnham and others that are kind of jostling for this position, potentially talking about higher taxes, even higher taxes, and squeezing middle classes even more, and lots of different moves that could potentially bring that. But the thing they just don't like the most, the markets, is just the uncertainty. And we've spoken about this before. We're not even two years into Keir Stafford's premiership.

8:50Georgie Frost: and him being prime minister. And he came into power with that one simple phrase of change. And I remember saying that on the day of the general election when we did the podcast, that one thing was just change. But here we are. It's like some sort of weird cabinet top trumps of all of the kind of different party fractions fighting each other. How are we in this position once again? And, you know, there's all sorts of things at play. You know, it's difficult to keep a party of people happy. The local elections were an absolute bloodbath for the Labour Party last week. So, you know, that's been a big trigger of that.

9:30Georgie Frost: And also certain other things that have gone on in recent months, including the Mandelson stuff that we won't get into here because it's a financial podcast, not a political podcast. But it just all of that uncertainty then just has a hit on everything that's going on. And that's Simon actually pointed out as well. It's not all of the, you know, the kind of guilt spike and it isn't completely just the Labour parties doing, you know, the Iran war. We shouldn't forget that, you know, that has caused a quite seismic inflation shock and the geopolitical arena is still fraught with all sorts of dangers.

10:04Georgie Frost: But in those times, you want a solid leadership and a party and people that are governing this country all pulling together at the same kind of time and facing up to the adversity rather than squabbling all in the background and causing all this havoc.

10:18Lee Boyce: Yes, quite.

10:19Georgie Frost: It's not a good look, is it, Lee?

10:20Lee Boyce: It's not a good look. Just as you were speaking there, I had a push notification from another publication. UK bond yields hit the highest since 2008 on the collision of rising oil prices and political chaos. So there you go. That currently, as you're speaking, it pops up on my phone. Simon, Lee made a point there that, look, this is not all Labour. We've got the situation of the Iran conflict going on. But why particularly something going on over there would it affect guilt yields here? Seemingly more than others. I don't know. Is it more than others?

10:54Simon Lambert: Yes. So guilt yields are the, as Lee said, that's the interest rate on government borrowing. And the way that guilts work is basically we need to borrow money in order to fund our spending. and the government or guilt office issues gilts to investors and they have an auction for these gilts and they will do them at a set rate so for example you'll have a two-year guilt that pays you know x percent you'll have a five-year guilt that pays y percent you'll have a 10-year guilt that pays z percent right now you can effectively set the rates yourself but if you set them too high you will end up paying more for your borrowing than you need to and you'll have lots of people who want to lend you money if you set them very high if you set them too low then you will have people who don't want to lend you money and you won't have any demand for it and you're going to struggle to fulfill your borrowing requirements and what defines where you can set them is the prevailing rate in the market because gilts once they're bought at face value can then be traded between the date when they start and their maturity and the price of the gilt will go up and down depending on demand and the price affects the yield so for example if you've got a 100 pound gilt that promises to pay five percent and the market changes and now interest rate expectations are that interest rates are going to be five and a half percent then investors might say well do you know what i don't want to buy your five percent guilt for a hundred pounds anymore because i can get five and a half percent elsewhere so the price of that guilt goes down to the point where the yield meets the five and a half percent that could be got elsewhere and what's going on at the moment is that you are seeing guilt yields move up um and so that's happening in the secondary market when bonds are being traded and it's obviously going to happen when you issue new gilts because otherwise nobody would buy them right because they could just buy the second hand ones that would give them that yield and a lot of it is to do with the iran war and the fact that that is expected to be highly inflationary so everybody knows about the straits of hormuz now drive past a petrol station look at the price of petrol don't look at the price of diesel because that's even more expensive read stories about how well, fertilizer costs are going to go up, food prices are going to go up, energy bills are going up, all that kind of stuff.

13:27Simon Lambert: It's considered to be highly inflationary. And we've gone from a scenario where the Bank of England was expected to cut rates perhaps two or three times this year to one where it suggested it might raise interest rates two or three times this year. And that's a substantial turnaround. And that's then reflected in expectations in the gilt market and government borrowing. So you can't put all of this on the labor chaos. however there is a chunk of it that is the labor chaos so what we've got is the worst of both worlds we've got a situation where inflation expectations have changed dramatically turned on their head by a global uh issue you know the conflict uh with iran and in the middle east leading through to the fact that everything's going to get much more expensive and the bank is probably potentially going to have to raise interest rates because what it needs to do is stop inflation expectations getting embedded in people and businesses minds can't do anything about the inflation that's already happened can do something about the inflation that might happen in the future and then on top of that you've got like the icing on the cake of this instability chaos and also a concern that whoever comes in is going to be more left-leaning and they're going to in order to try to appease the parliamentary Labour Party to do more taxing and more spending.

14:51Simon Lambert: And we're already sort of at the limit on the tax stuff of what we think Britain is willing to pay. We're taxing. We are taxing higher earners a lot. We are taxing those with money a lot. And we're very unwilling to tax average earners or lower earners more. And there is a lot of cases put forward by economists who know what they're talking about and don't lean either way, like the IFS, for example, that says we need to widen the tax base. We need to be taxing the average earner more because the tax rate for the average earner has been reduced substantially and was reduced substantially under the Tories as well.

15:24Simon Lambert: And then there's also the expectation we're going to spend a load more money. For example, also that we're not going to get a grip with things like welfare spending. Labour tried to do something about that and then it had to back down. So they're looking at the scenario and going, you know, Rachel Reeves is on a path to balance the books. then they're looking at it and going Rachel Reeves and Keir Starmer if you want to balance the books which is what bond investors want right they want to balance the books and they want some growth they're looking at it and going they're probably the best you're going to get and the alternative is going to be worse and that's why you're seeing guilty yields move up and you've also seen the return of what was dubbed the moron premium Simon what's that?

16:02Simon Lambert: I can't remember who coined this phrase it was journalists and I'm doing them a discredit by by not citing them but this came from the kind of liz truss era when basically we were paying more to borrow than other countries due to our own foolishness and the fact that we had shot ourselves in the foot massively uh the moron premium um and it's difficult to quantify the moron premium but i will read you uh some 10-year bond yields okay uk 10-year bond yield 5.15 percent that's what we have to pay to get people to lend money to us for 10 years u.s 10-year yield 4.54 percent france 10-year yield 3.76 percent italy italy not known for you know being italy not known for being financially amazing in in our in our brains right you know in our in our perception yeah perception i should say uh 3.88 percent greece remember greece the poster child of the um eurozone debt crisis uh yeah that's 3.82 percent so make your mind up listeners whether the uk has a more on premium or not or not lee

17:23Lee Boyce: just spell it out for us how worried should we be about mortgages tax the wider economy me?

17:32Georgie Frost: I think it's safe to be a little bit worried. I mean, gilt yield spiking does have a knock-on effect a little bit to mortgages because a lot of the way that mortgages are priced via Sondra swap rates are linked to gilt. And we have been in a period in the last couple of months triggered by the around war of mortgage rates going up. And, you know, some people, some homeowners are going to see their mortgage rates come quite a bit higher, especially if you fix five years ago, you're coming out of that kind of era of low rates. You could be facing a bit of a monthly shock on your bills. An alert more to the left from Labour would likely mean, you know, the Resolution Foundation came up with a kind of list of things that it was suggesting they could do.

18:16Georgie Frost: Like what, Lee?

18:17Lee Boyce: What was in that list?

18:18Georgie Frost: Well, pressing for higher income tax combined with lower national insurance, council tax reforms, raid on pension lump sums, scrapping the pensions triple lock even more changes to capital gains tax and inheritance tax changes um we've got inheritance tax changes coming in from next april where pensions are going to be included in the calculations but they want to go further and they're saying in this paper the government's reset i mean and i agree with you here you here georgie reset just like you know this is not a computer game you don't just like get a new life and start again you know from the beginning you don't like you know just in in the middle of everything just yeah big reset but saying that the government's research reset should double down on growth and focus on those who have borne the brunt of long-term economic stagnation young people and working families their need should be prioritized over advantaged wealthier households who have benefited from britain's 40 year wealth boom and a state that is increasingly dominated by delivering health care and pensions You know, so you can see this is getting nasty again, potentially.

19:22Georgie Frost: It's all about the generational wealth gap and all of that kind of thing again. And I think that's probably what will be in the scopes and the target, you know, potentially of any new prime minister that comes in. The thing is, though, you know, potentially only got three years to do things like that. And this labouring fight and everything that's going on could take another few months, you know, to iron itself out. And by the time you've done that, you're halfway through being elected into government. And it's sort of, you know, all over. So I think, again, the thing that's the worry is the uncertainty, really.

19:57Georgie Frost: But there was some economic data out this week suggesting that we're not doing as bad as described elsewhere. And maybe things are a little bit, you know, there's unexpected growth, you know, 0.6 % growth. it's really hard when everything that's going on and all the noise that's going on you know with something like this the actual real economic news and stuff going on in the background being buried

20:18Lee Boyce: a little bit yeah no quite John decided I don't know that I'm the greatest sort of judge a character in life you know I kind of thought with Boris Johnson for example that his ego would be his saving grace almost because he he would want to do well and that didn't come to pass and then I thought with at least with sakir wouldn't say he's the most charismatic chap but i thought you know maybe that's what we need a little bit of calm a little steady hands but that didn't work out either anyway simon and the resolution foundation ideas that lee spoke about earlier i'd love you to sort of weigh in on those and just give me your assessment and what you think would actually

20:58Simon Lambert: work well i'm the kind of idiot who actually decided to open up the full resolution foundation report and read it it's quite long it's quite detailed and actually when you start digging into it there's some stuff in there that aren't necessarily bad ideas there is some stuff in there that is bad ideas but um i think the overarching point that lee made there is is accurate it's like it is talking about like taxing wealth and things like that and i think that's where it sort of is wide of the mark. But if you dig into the individual ideas, I actually think there's some sensible stuff in there. So firstly, I would say, as Lee said, the economy is actually probably doing better than we think, certainly than our perception of it.

21:41Simon Lambert: And I actually think the economy is probably doing better than the numbers indicate. I do think there is a bit of a separation going on in the economy between the bit of the economy that's doing well and the bit of the economy that isn't doing very well. But we have soaked up already the bad stuff, right? The economy is doing well, despite the government, we've basically soaked up the higher costs from the employers, national insurance, the minimum wage, you know, the obstacles that have been put in businesses way, that's already happened, businesses have already reacted to it, it's not been great for, you know, parts of the industries, hospitality has really suffered and things like that but you know we are where we are as they say right and i think things are moving on from there i think the consumer isn't doing too badly i am worried about what's going to happen with inflation but the evidence is that like people are still doing okay and people are still people are still spending right which is quite important for a consumer economy like ours and i listened to the boss of land securities one of the biggest you know property companies in the uk on the radio the other day and he was like no no no things are like they're not that bad obstacles have been put in the way of businesses but you know things are actually going pretty well at the moment um so that i think is something that we need to bear in mind and probably something that should have been born in mind born in mind before we started the current bout of chaos if you look at the resolution foundation individual things in there that are actually quite good right so capital gains tax it says that capital gains tax rates should be equalized with income tax rates now this is a classic thing that's been banging around for ages right and there is an argument for it there's an argument against it the argument for it is people are making capital gains and they are making you know paying lower rates of tax than people who have to go out and work and earn income the argument against it is that they're taking an entrepreneurial risk and there is a risk involved in that that is not involved in just going and being paid by an employer.

23:47Simon Lambert: But what it says in there that is quite a good idea is that you do this, but only on gains above a real rate of return. So you introduce an element of indexation. So basically, you're only taxed on above inflation gains. And this is how capital gains tax should work. And if you were going to bring in a scenario where you equalise the rates, that's what you should do. You shouldn't do what's been going on, which is cutting the capital gains tax limit, raising the rates, but not taking into account inflation. Now, arguably, you should do that for some other taxes as well. You should probably be doing it for inheritance tax, for example.

24:23Simon Lambert: Now, this report says get rid of the nil rate band. It doesn't say what you do instead. If it's just get rid of the nil rate band and then tax people on 40 % on everything, then I don't think that's a good idea. If it's get rid of the nil rate band, but make inheritance tax 10 % on everything, well, all of a sudden that starts to change the game. The other stuff it says is we need growth. And it says that we are seeing growth, but that the rate of growth is not high enough to get us to the point where we balance the books and where we get ourselves into a good position where we no longer have to be in hock to the bond markets.

24:57Simon Lambert: And this is one of the reasons why the bond markets don't like Andy Burnham, because he's like, the bond markets, we're not going to have to answer to them. They're like, well, Yatsi, sunshine, you are. Because you're not in a financial position to say that. If we get ourselves into a good financial position, then we can say we are not going to be in hock to the bond markets. And that's the point being made in this report. And it says we need growth and we're not getting it. We need to do things to get that growth. Where I think it's wide of the mark is I think in order to get that growth, actually, this sort of raid on wealth element of stuff that's going on.

25:31Simon Lambert: I think that's the opposite of what we need to do. Actually, we need to get the wealthy people in this country to remember that they are wealthy. And by that, I mean mass affluent wealthy people. I don't mean the really, really rich people who fly in private jets and eat in unbelievably expensive restaurants and stuff like that. I think they know they're rich. I'm talking about the wealthy middle classes who have felt like they're under attack since the financial crisis, which is nearly two decades of feeling like their wealth is constantly under attack. and it's not working. They're just bunkering down and they bunker down more and they bunker down more and they bunker down more.

26:09Simon Lambert: Yet we're talking about people who often have tens if not hundreds of thousands of pounds in cash and investments, who have healthy pensions, who own their own homes that is worth more than they ever thought their home would be worth. Yet they don't feel well off and they feel like they're constantly being attacked. And so they're hoarding. What we need to do is remind them that they are wealthy and get them to spend their money and get them to give their money away while they're alive. I would completely rejig inheritance tax to encourage lifetime gifting. I would massively raise the lifetime gifting levels.

26:44Simon Lambert: The more money that the baby boomer generation gives away now, the more growth we will get because they will hand it to their children and their grandchildren who will be able to use it for a home deposit, who will be able to use it to help themselves live better lives and so on and instead of it just being parked somewhere only to be hit with like britain's most unpopular tax like at the point where they die get them to give the money away now get them to spend their pensions get them to spend their savings get them to feel like they can invest their money which we're doing with the savvy squirrel but they're not going to do because they're still sitting on cash because they feel like the wealth is under attack it's like get them to go out but i've said about this before offer them offer an inheritance tax break on guilt right right they're sitting on tons of money right say buy guilt hold them to maturity free of inheritance tax and if you die first your beneficiary can take them and then they can sell them and they won't have to pay any inheritance tax on them that'll bring down guilt yields use the money that we've already got that's the stuff that we need to do and if you put that thing to the bond markets and you put a sensible plan to them, they'll go, well, do you know what?

27:54Simon Lambert: Actually, this will deliver growth and we believe it. And it's not the same as Liz Truss and Crossey Quartain, who basically just cut a load of taxes with no idea about how we were going to pay for it, apart from saying it will deliver growth.

28:06Lee Boyce: Yeah, having a sensible plan, that'd be nice, wouldn't it? Lee, let's move on from this, because Simon there mentioned hoarding. And I think this might be a good place to bring in something you've written about, cash prepping. Now, we might be using cash less and less for spending, but that doesn't mean it's disappeared totally out of our lives. We still use it for budgeting, for privacy, control. And actually, Lee, reading between the lines, we're also stuffing it under the mattress at home as well, keeping an emergency stash at home in case digital payments go down. Not an absolutely ludicrous idea, but I don't know how much you'd need to stuff for that to make a meaningful difference.

28:48Lee Boyce: Not great for inflation either. But either way, all of this in the context of the fact that this is quite a stat, nearly a quarter of retailers no longer accept cash at all. So are we drifting towards this cashless society, whether we like it or not? Lee, you've been digging into the cash stats. What do you find?

29:07Georgie Frost: Yeah, we are kind of walking into a bit of a cashless society, Georgie, without a doubt. And these stats kind of prove it. Just going back to some people cash stuffing and keeping money at home and prepping, there was a report, it was an exclusive for us by Link, looking at people's kind of habits and what they're doing. There's some people that are really, really, really pro-cash. They claim that's all they use. And then you have some people that say they've already gone cashless. They're not using cash whatsoever. It's inconvenient. and then you just have the regular people like the three of us probably like most of our listeners that like to be able to take out cash and spend cash as they see fit because sometimes it's good to pay by cash sometimes it's good to be as a budget and it is just about keeping it alive but for the majority of our life we use contactless payments or we use car payments and we're very used to it um but what this this data was showing essentially is that um one in ten say they're now fully cashless 56 % say cash is still vital though and talking about major disruptions such as power outages IT failures natural disasters cyber attacks link ask the question you know what are people doing and 17 % of people are saying they're stashing cash at home specifically for this type of scenario you've got to be a little bit careful though you want to make sure that your cash is protected in under any home insurance that you've got and probably keeping it under the mattress This isn't necessarily the greatest idea.

30:33Georgie Frost: But it is a really interesting piece of data because it shows just how quickly shops, for example, are binning off cash. Because a large part of that is the fact that it's hard now for retailers to deposit cash, for example, and do their day-to-day banking because branches are disappearing at a rate of knots. Barclays, for example, is down to something like 200-ish branches, which is an incredible number when you consider how many Barclays there were across the country before. And that's symptomatic of basically lots of major banks. But in this report, 14 % have scrapped physical money acceptance in the past year of businesses, retailers.

31:15Georgie Frost: So that means that almost a quarter now no longer accept cash. And most of them will say it's fiddly and difficult now to go and bank a local branch. um it looks uh it's a kind of biannual report so it we found that 61 so three and five of us have used cash in the past two weeks down from 69 last year and 73 in 2024 and the main places that we still do use cash uh supermarkets convenience stores giving money to friends and family cafe cafes and pubs i must admit i do quite like spending cash in a pub and there's something quite nice about being able to sort of budget and not that 20 quid would get you very far anymore you got to go in to a pub now of about 50 quid um just to just to touch the sides or pay for a round personally speaking i think cash still and you'll be not not surprised to hear this if you're a long-term listener has a vital place in what we do and actually that you was talking there about you know the kind of control aspects and the kind of privacy i'm a firm believer of that there are some transactions and I'm not talking about like dodgy weird transactions here there are some things that I just prefer to pay in cash a little bit of discretionary spending on things I want to buy and what I want to do that you know I don't think needs to be logged in an app and I need to see it on a statement and that's why I do quite often on payday just withdraw you know a little bit of money make sure I've got it in my wallet spend it and of course things do go down you know payment networks go down systems go down your bank might go down and i think it's just good habit to always have that backup option but the more that the years roll on the more retailers that are not accepting it the more difficult it becomes and i think that's a real real tragedy if i'm being quite frank and i hate being told that i can't use a certain payment method inside a retailer um you know if you're not accepting cash then you're probably not gonna do without my business, if I'm being quite frank.

33:14Lee Boyce: Ooh, Lee. Rightly, though, from cash to premium bonds. Are they back, baby? After cutting rates just weeks ago, NS &I has performed a sharp U-turn, boosting the prize fund rate from 3.3 % to 3.8 % from July, whilst also improving the odds of winning. Savers had pulled£100 million out of premium bonds in April after the previous rate cut so did nsni underestimate lee just quite how loyal bondholders really are and rate sensitive i

33:48Georgie Frost: suppose we had a feeling this was coming georgia actually at the start of this week i kind of said i said to myself i wonder if premium bonds are going to go up because nsni a couple of weeks ago they increased the rates on a couple of its popular fixed rate products which made me think they're struggling to attract the cash in and of course the most popular nsni product of all is premium bonds and that rate has been chipped away uh in in the last 18 months or so but the reason why i kind of also thought i wonder if they're going to be looking to to boost the rate it's just the fact that competitors rivals i.e the banks building societies um have been nudging savings rates up a little bit and what nsni has to do is position itself so it's not the top of the tree but it's kind of still competing with what else is out there and premium bonds were sliding down that table and people were starting to go do you know what i'd rather get a guaranteed return rates are getting better we've just come into the back end of a cash isa season in which you know more people have probably tried to cash stuff because of the 12 000 pound rate cut limit cut that's coming in next april for under 65s put all of that together and money has come amount of premium bonds which is actually not a surprise but you know a thing that doesn't happen that often and nsni has been targeted by the government to bring in 15 billion pounds in this financial year well you put again you put all of those ingredients together and i thought there's going to be a rise um we got our savings reporter sylvia morris to sort of give her verdict in the her section on wednesday and then on thursday nsni revealed it was putting up premium bonds so one of those things that kind of happened and i'm still hodling my my premium bonds george holding on for dear life and i think that they have a place in people's financial planning anything recently i actually hold just about the average amount in premium bonds which i think is about five and a half grand or something like that um what i was going to say is they're a great product to have but not to put all your eggs in one basket which i think is what some people do do you know i would say that first of all we're going to make sure you've got your emergency savings fund somewhere um you want to make sure that you are you know saving as much as you can into your pension making sure that you're investing it should just be part of your kind of portfolio rather than thinking this is just a lottery alternative and you can get your stake back if you don't win and just continue blindly with it without potentially getting any interest whatsoever and that's the danger because lots of people don't win prizes and especially because a lot of people now in the last five years the amount of people that have maxed out the 50 000 pound limit is huge and i've looked at this not that long ago there's two one million pound prizes every month with ns and i i think only once i'm right in saying so far this year has the one million pound prize been won by someone that hasn't held 50 000 pounds so the full limit because obviously the more you've got in there the more you know you improve your odds of winning some sort of life-changing amount but it's a step in the right direction um it's good to see the premium bond rates going back up it's going to happen from the july draw um and i think this is really you know a big kind of thing that's happened i'm going to link premium bonds to the iran war but that but frankly where savings rates have been going up because interest rate um hikes have become far less likely and the competition's ramped up nsl is having to act in order to attract people back into premium bonds the question is have they annoyed people enough with the cuts that they've done so far in the last 12 to 18 months to entice people back.

37:25Georgie Frost: I mean, 130 billion odd held in premium bonds. People are going to still, I would have thought this move will make it way more attractive again. And I wouldn't be surprised to see if a bit of a flood of money go back in.

37:38Lee Boyce: It's odd, isn't it, Simon? A sort of government-based institution or linked institution is raising rates to get people to save more. We don't really want that, do we? Well, the government doesn't.

37:49Simon Lambert: What, at the same time as it's trying to encourage those savers to invest alongside the investment industry with a campaign featuring a squirrel? Yeah, I could see how these two things don't fit. I mean, some would argue that raising taxes on dividends and capital gains don't really fit in with that either, or refusing to get rid of stamp duty on share purchases or cutting the ISA limit on cash, you could argue does fit, but doesn't really works it sort of confuses people i i think it all might be a bit mixed i i actually keep my rainy day savings pot in premium bonds because it is sufficiently difficult for me to get at the money yet if i needed to i could probably get it within about one working day so i actually think it's quite a good place for your emergency savings pot your rainy day fund if you can tide yourself over for a day or two.

38:45Lee Boyce: Yeah, absolutely right. All right, then, finally, Lloyds Bank has become the latest lender to launch a low-deposit mortgage that could help first-time buyers get on the ladder earlier. So the High Street Bank is offering aspiring homeowners the chance to buy a property with just five grand. But, good idea, what's the T's and C's? Simon, yes, nodding your head there.

39:10Simon Lambert: so look basically it's available on homes worth up to 300 000 pounds with no product fees as well which is important because you don't want to be able to like buy a home with the just a 5 000 deposit but pay 1500 pounds in mortgage fees that would be one of those things that we were just talking about undermining yourself so 300 grand property you put down 5 000 pounds i mean that is a tiny deposit less than two percent in fact so you eligible buyers would be able to borrow up to four and a half times their annual salary so this means for the maximum 295 000 mortgage someone would need to earn 65 500 pounds a year um a couple obviously could do it with lower income as long as they collectively earn that amount so if you had two people on average wages they could basically afford to buy a£300 ,000 home with this, just£5 ,000 down.

40:08Simon Lambert: The question is, should they? This is one of those things where you have to detach the kind of overall view on this with the personal element. My overall view on this is no. I think buying properties with very small deposits is high risk. You leave yourself very exposed to house prices falling and ending up in negative equity. House prices don't need to fall much if you've only put£5 ,000 down on 300 grand property. House prices don't always go up. And you might find that you're in the position where you either need to remortgage or move and you have a mortgage that is worth more than your home, which is a situation that you want to avoid.

40:51Simon Lambert: Arguably, if you can save a bit bigger deposit, it even if it's you know five percent ten percent you're just giving yourself more of a buffer right so and and also things like this effectively just drive up house prices because you're lending people more money you're making it easier for them to pay higher prices for properties so basically it's inflationary and we don't need stuff that's inflationary for house prices so on that sense bad idea if i was someone who was living in a rental property would much prefer to own my own home I could actually end up paying less per month with one of these mortgages than I'm paying in rent anyway I've found somewhere that I'd be very happy to live in for five years over which period I would end up paying down some of the mortgage and so I would end up with more equity in the property even if house prices went nowhere and potentially house prices might go up a little bit and so I'll end up in a better position and at least it gets me on the property ladder then on a personal level I think, do you know what?

41:50Simon Lambert: Actually, maybe I might take a punt on this. But I think what you need to realise is that you are taking a punt on this in a way that a normal, more traditional, you know, larger deposit mortgage, you are not taking a punt on. But low deposit mortgages were very common through the 1980s and early 1990s. We think of them as a financial crisis era thing, but actually people bought homes with lower deposits through that era, but they were much more limited on how much they could borrow compared to their incomes, which I think is a very important point. But just one thing before I finish on this, from a mortgage broker, Andrew Montlake of Coreco Mortgages, emailed me earlier this week when this came out.

42:32Simon Lambert: And this is what he thinks. He said, this is a genuine shot in the arm for aspiring homebuyers, especially those who don't have the luxury of the bank of mum and dad behind them. For many would be buyers, the issue is not whether they can afford the monthly mortgage payments, or whether they have a good credit record the real mountain to climb is saving a big enough deposit while rent bills and everyday living costs continue to take a hefty bite out of their income so there you go he says good idea i'm on the fence um but i could definitely see how on a personal level it's a good idea but on a big level bad and monty is a sensible man lee what did your gut say the same assignment

43:09Georgie Frost: really you know it's a really difficult one because i'm a big advocate of people being able to get onto the property ladder, not feeling like they're being left behind. And trying to find a 10 % deposit on a property is the biggest barrier, let's face it. But lots of banks and building societies are starting to come out of these, I think under potentially a little bit of government pressure to try and kind of get more first-time buyers on the ladder. Santander recently came out of a 2 % deposit mortgage for first-time buyers. Yorkshire Building Society and Accord offer£5 ,000 deposit mortgages, up to 99 % loan to value.

43:44Georgie Frost: And Skipton has its track record mortgage that we spoke about in depth a few years ago. I remember when it came out, a bit controversial, 100 % of purchase price. So basically you don't necessarily need to even have a deposit for that one. All of these things make it a little bit easier to get onto the property ladder. £300 ,000 limit, I don't know what that's really getting you in the southeast, if I'm being quite frank, even in a time where house prices have actually been quite static. in the last few years. Also, I should point out here, Lloyd's is the biggest mortgage lender, and it's also got ambitions to become Britain's biggest landlord in the fact that it rents out.

44:25Georgie Frost: It has 7 ,000 properties that it now rents out, which I'm not sure people are fully aware of, and has plans to have 50 ,000 rental homes by the end of the decade. It's in their interest for house prices to be going a little bit higher, which might sound a bit controversial, but you have to look at all of the things at play here on one hand it looks like a cuddly friendly thing where it's like hey you know you haven't got a huge deposit to be able to put down and buy a home we can help you but it's a bank it's there to make profits we've just come out bank profit reporting season uh tens of billions of pounds in the quarter of profits being made but i would like to see any person and any couple or single person that wants to buy a home be able to buy a home what i think that you know the same probably feeling assignment is that you don't want to see them fall into negative equity you don't want to see them end up basically getting trapped in their first home because you know they've made a bit of a rush decision and whatnot the other thing actually and i should point this out as well i think you have to be completely completely aware of as a first-time buyer is how long you take the mortgage out for in terms of if you're going for what 10-15 years ago 25-year mortgage was just the standard we're now talking more like 30-35 years sometimes 40-year mortgages and that might bring down your monthly costs and how much that you're paying back on the mortgage but the amount of interest that you're going to be paying on that purchase price is going to go up the more years you stretch it and you should check out how much interest you're going to be paying on a certain amount of money over that time.

46:07Georgie Frost: As long as you're fully aware of that and that there's some risk involved in that, I think that's fine. But it's way bigger picture than just you can get on the property ladder with this£5 ,000.

46:17Lee Boyce: All right then, Simon, you start the week.

46:21Simon Lambert: $900 billion.

46:25Simon Lambert: That is the valuation put on Anthropic, the maker of the clawed AI models. uh anthropic has agreed terms of the 30 billion dollar funding deal at a 900 billion dollar valuation which is interesting because obviously 900 billion dollars is a lot of money it's also considerably more than the 350 billion valuation that was placed on anthropic three months ago remember we were talking about ai bubbles not that when we were worrying about ai bubbles before we were worrying about iran wars and and mad political parties doing mad stuff again yeah it's it's interesting now anthropic has is gained an edge on its biggest rival open ai recently in terms of a kind of belief that anthropic is a the better model and b also like better for businesses um i have spoken to people who use claude for business and have said that it is seriously impressive.

47:30Simon Lambert: Somebody described it to me the other day as like definitely better than the worst person on his team and nearly as good as, now nearly as good as the best person. So like, but I mean, this is a company that does not actually make a profit. It has revenue, although that revenue is, I mean, the run rate revenue is claimed to be 14 billion or was in February, but then there was also another story that said it had made 5 billion revenue in total. So I'm not sure which one of those it is. What I do know is even if it's 14 billion and increasing rapidly, there's a big gap between that and 900 billion.

48:09Simon Lambert: And that's revenue, not profit. So, however, there's a serious AI arms race going on at the moment.

48:19Lee Boyce: That is it. We'll leave it there. You can keep up to date with all the latest breaking money news. Just go to thisismoney.co.uk or download the app. And if you have any comments or questions of the team or anything you would like them to look into, Simon.

48:31Simon Lambert: You can email us at podcast at thisismoney.co.uk. Send us your questions as well. If you've got a question that you want us to answer, send us your questions. And come to thisismoney.co.uk forward slash podcast.

48:42Lee Boyce: And if you like our podcast, why not rate us wherever you found us? Because it helps other people find us too.