An uncertain future for your finances, too

Uncertainty over the euro's future is already making itself felt in people's lives. There could be further fall-out, good and bad, depending on which side of the interest-rate divide you sit.

What does it mean for my mortgage?

Alex Bannister, economist at Nationwide building society believes that the Government's apparent cooler attitude to the single currency is one of several factors driving up longer-term interest rates in the wholesale money markets. In turn, this drives up the cost of fixed-rate mortgages.

Earlier this year, five-year fixed-rate loans were available at less than 5 per cent. Now, even the best rates are edging towards 6 per cent.

The more Britain distances itself from the euro, the higher our rates could go.

What about my savings?

The same factors that influence the cost of fixed-rate mortgages are also at work in the savings market.

Here, returns on fixed-rate bonds are rising. Rate-tracking service Moneyfacts notes a rise in rates on fixed-term bonds. One small bank, for example, is offering more than 6 per cent on larger deposits.

The price of my house?

Rising mortgage costs are generally bad news for house prices, but rates would have to rise quite sharply to undo profits made recently.

Yolande Barnes, director of research at agent FPDSavills believes that interest rates are a much less important factor in determining prices now than in the past, because buyers are putting more cash into their properties.

My holiday money?

For people taking holidays in Euroland countries, including Spain, France and Portugal, the more uncertainty there is over the euro the better. Fred Tilley, a senior foreign exchange dealer at Thomas Cook, explains: 'For the UK consumer, a holiday is becoming cheaper. In Euroland, inflation is low. If there is devaluation in those currencies, you receive true value for that, as opposed to somewhere like Greece, where the pound has appreciated but inflation has gone up. The value of money in your pocket is no different.'

My pension and investments?

If you accept the view that uncertainty about euro membership is helping to drive up longer-term interest rates, the trend is also doing a favour for people about to retire.

When long-term rates rise, the price of long-term Government bonds tends to fall and the yield, or return, rises. This is good news for annuities, which provide guaranteed incomes for people cashing in personal pensions and money purchase company plans. Annuities have increased recently, although they at a historic low.

Peter Quinton of The Annuity Bureau does not attribute recent annuity rises to the euro, but believes that a rise in longer-term gilt yields last week was euro-linked. If there is more of this to come, annuities could go higher.

Gerry Holtham, strategist at Norwich Union, says the euro's fall will have reduced the value of some sterling investments in European stock markets. This could affect pension funds and money in European unit trusts.