Moneyfacts.co.uk 2007 predictions
2006 was a year fraught with activity in the personal finance arena, but what does 2007 have in store? We consulted a panel of Moneyfacts.co.uk experts for their predictions on some of key personal finance topics for the forthcoming 12 months. Here is what they had to say:
Base Rate
The two base rate increases during the latter part of 2006 seem to have had little impact so far either on reducing inflationary pressures or on dampening house prices. It was not surprising therefore that 100% of our panel predict a further rate rise in 2007, with 80% anticipating this will occur during the first quarter. And at the end of 2007, 20% expect bank base rate to be 5%, 60% - 5.25% and 20% -5.50%.
With incomes already stretched and rising debt burdens exacerbated by increased utility costs and the delayed impact of Christmas spending on credit cards, a rate rise early in the new year could be the tipping point for many.
Consumers on a tight budget should take a look at their financial position and perhaps choose products that offer some protection against rate increases.
Credit Cards
Over the past couple of years the UK credit card industry has struggled with rising bad debts. The combination of the rate tart culture and a highly competitive market has put pressure on profit margins. But despite this we continue to see very attractive deals hitting the market. 2006 has seen the fee free 0% balance transfer deal almost die, so will 2007 see the demise of the 0% deal? With only 50% of our expert panel, predicting a fall in 0% deals we will be monitoring this sector closely.
However, 90% of our panel foresee the resurgence of monthly or annual credit card fees. Credit card customers have been hit by rising rates, increasing fees, and revised terms and conditions following the OFT intervention to reduce penalty charges. Card providers have already shown that they will not take any loss in revenue lying down, and it will only take one of the larger providers to take the lead and reintroduce fees for the others to follow suit.
Personal Loans
For some time now, the subject of PPI has been one of controversy. It is claimed to be overpriced and inflexible to consumer’s needs, but a very profitable product for the providers. The OFT is due to review PPI later this year, but with low margins available on the lending itself, if providers are forced to revise their PPI, and ultimately to make the product more competitive, what will be the consequences?
Our expert panel predict that, should the OFT force providers towards PPI sold on a monthly pay-as-you-go type policy, we could see best buy loan interest rates reaching double digits in 2007.
The review of the PPI market is long overdue. Let’s hope 2007 will see positive action from the OFT to make PPI more competitive, transparent, and customer friendly. PPI should be a stand-alone product, giving consumers the choice to buy from banks, building societies or independent providers and to know that the decision on the granting of their loan will not be influenced by them purchasing cover elsewhere.
Current Accounts
Current account penalty fees are another target of the OFT. We have seen providers acting early, pre-empting their potential loss in revenue by increasing overdraft rates and changing their account terms. So if the OFT does go down the same route with current account fees as it did with credit cards, what will the impact be?
- Our panel expects more banks to charge fees on standard current accounts
- 80% expect overdraft rates to rise further
- 40% predict current account charges will become more complex.
Let’s hope the OFT has recognised the consequences of its actions in the credit card market, and applies consideration to this should it reduce overdraft fees. For those customers who work within their account terms, it seems a little unfair to see them hit by fees, unless of course they are rewarded with a better product and customer service in return.
Mortgages
2006 has been a year of innovation in the mortgage market, with many providers moving into specialist lending areas. Several mainstream lenders have dipped their toes into the sub prime market, but is the market saturated or will more lenders follow suit in 2007?
70% of our panel agreed more lenders will enter the growing sub prime market this year, and all agreed that the classifications needed to be simplified to make this market transparent for the consumer.
Savings
This year has seen two distinct strategies emerge, first those providers who promote simplicity and secondly those who offer market leading rates but need to offer complex accounts with an array of terms and conditions as a result.
- 90% of our panel predict a rise in complex style accounts in 2007, while 30% also predict the greater use of simple, no strings accounts such as Icesave.
Competition in the savings market means there are still some great deals to be found. But make sure you know exactly what you are getting, and if the rate does look too good to be true, then it probably is – unless you are prepared to abide by strict and sometimes onerous terms and conditions.
NOTES TO EDITORS:
Moneyfacts Group
Moneyfacts is the UK’s leading independent provider of personal financial information and our data is used and trusted throughout the financial industry.
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