• Consumer finances will continue to be hit by rising costs, changes in benefits and further austerity measures
• Savers should look to find the best savings rates possible, as rates continue to fall
• 2013 will be the year for improved switching of bank accounts
• New technology will play a bigger part for Credit Cards in the year ahead
• Funding for Lending Scheme will continue to benefit borrowers, but interest-only mortgage “time bomb” set to be a big story in 2013
• Consumers will benefit from attractive loan rates as a result of Funding for Lending scheme
• Payday loans set to continue to be popular in 2013, but regulation should tighten up the market
• Effects of regulation changes will impact car insurance pricing in 2013
• Energy efficiency will be key focus for Government and households
Clare Francis, site editor at MoneySupermarket.com, said: “There is no doubt that 2013 will see further pressures on household bills and income with rising costs, changes to benefits and other austerity measures taking effect. For many people, it may be difficult to see the light at the end of the tunnel. It is therefore vitally important that people take full control of their household expenditure and look to reduce outgoings and free up some cash – it is possible and straightforward to claw back important pounds for the family purse.
“With austerity measures lasting until 2018 at the earliest, it is clear that the pressures on our wallets won’t ease for some time so taking action and being proactive is the only real option. Checking all of your outgoings and identifying where savings can be made should be a priority in 2013. For example, look to see whether you are on the cheapest energy tariff available, or make sure you aren’t throwing good money after bad by making regular payments for services you no longer require. Using a comparison website to switch products is straight forward and could save you over £1,000 over the course of the year on your household bills.”
Kevin Mountford, banking expert at MoneySupermarket.com said: “As predicted, during 2012 we saw an increase in the amount of money put into savings as the continued economic uncertainty pushed consumers to save more, and reduce their debts. The likelihood is that this trend will continue into 2013. However, even though inflation has fallen, savings rates have started to drop at a faster rate. There is no sign that the Bank Base Rate will increase in 2013 and as such it will make it difficult to secure the kind of rates that we have experienced over the last couple of years. That said, there will continue to be competition in the market and as most savers are earning interest below the Bank of England Base Rate of 0.5 per cent, there are better deals to be found for those who look to switch.
“To date, banks have made huge strides in improving the switching process for current accounts but as yet this has failed to deliver the switching levels we see across other banking products. It is still the case that you are more likely to divorce than change your bank. Next year sees new switching rules come into force, forcing banks to switch accounts within seven days and also automatically re-direct any direct debits and standing orders for a period of 13 months after the move to another bank.
“These changes could also trigger the launch of further challenger products from the likes of Tesco Bank and Virgin Bank and these brands can join the likes of The Co-Operative Bank and Nationwide Building Society in trying to break the big bank strangle hold in this market. There will no doubt be more focus on fee based packaged accounts and next year there is likely to be more pressure on the free banking model.
“Early 2013 is likely to see more of the same in the card market. If consumer confidence returns and retail spending picks up, then there could be more purchase and cash-back cards hitting the market. Card issuers may look to capture ‘front of wallet’ status by pushing a good old fashioned flexible friend which incorporates a range of benefits such as the recently launched Asda credit card that offers zero per cent balance transfer along with cash-back and other benefits. As we have seen in 2012, providers have improved the offering on rewards cards, focusing on consumer loyalty, and we can expect further improvements in the deals available next year.
“No doubt we will see charge cards play a bigger part and new technology can further shape the way credit card users behave with the likes of e-wallet and mobile playing its part.”
Clare Francis, site editor at MoneySupermarket.com said: “There was a slight improvement in the mortgage market in 2012 with the Funding for Lending Scheme (FLS) appearing to be helping the availability of mortgages for those with smaller deposits and rates have become more competitive. With the FLS continuing through 2013, I’d expect to see the impact of that filter through further to the residential mortgage market and that will hopefully mean more lenders offering competitive 90 per cent LTV products.
“However, while mortgage rates look set to remain low in 2013, and could nudge even lower because of the availability of cheap funding via the FLS, I think the trend for higher fees will continue. It’s therefore really important that people don’t get blinded by the headline rate when comparing mortgage deals and that they factor in the impact of the fee as well.
“Finally, I think interest-only mortgages will be a big story in 2013. The Financial Services Authority has said it thinks interest-only mortgages have a role in the market, albeit as a niche product, but with a number of lenders having already clamped down on the availability of interest-only loans, and some having stopped offering them altogether, there are real issues for many existing borrowers who have them. For some it’s the question of how they’ll ever repay the mortgage debt, while for those who are managing their mortgage well, there’s the issue of what they’ll do when their current deal ends as they may struggle to remortgage if they want to stay on interest-only. The FSA is currently looking into these issues so it will be interesting to see its conclusions and recommendations when its report is published.”
Loans and Debt
Tim Moss, head of loans and debt at MoneySupermarket.com said: “With the Government’s Funding for Lending scheme gathering full steam, the lenders have capitalised on this to produce the lowest loan rates on record. However, with borrowers still showing a cautious attitude, the numbers of loans available are still way off pre-Credit Crunch levels. As a result, we will still see these remarkably low headline rates remain during 2013 - which is great news for consumers. One note of caution is that while rates look attractive, banks are unlikely to change who they want to lend to – if you haven’t got a perfect credit score the options to borrow remain limited.
“Consumer payday loan appetite sees no sign of abating. With bank’s underwriting policies looking unlikely to change, we predict that customers will still flock to find loans in other places – for the moment Payday will remain at the top of that pile. However, with the new financial regulator, the Financial Conduct Authority (FCA), beginning work in 2013 there will be moves to tighten up the payday market. As such, those brands that adhere to the stricter guidelines will no doubt reap the rewards. However, consumers still need to exercise caution if using a payday loan as they are an expensive product and should only be used in an emergency, and if you have a clear way of repaying that loan at the end of the month.
“With increasing regulatory pressure being placed on the paid-for debt solution market, many companies’ business models will struggle. It is likely that upfront fees will be outlawed next year and as such, debt management companies who pressurised consumers into paying fees before entering into a plan, will see tough times. As a result, the free sector may struggle to cope with an influx of enquiries as the number of alternatives within the paid-for sector reduces. However, for those in financial difficulty, there will still be many options available to them, whether paid-for or free debt advice.”
Pete Harrison, insurance expert at MoneySupermarket.com said: “The motor insurance market could become profitable in 2013 – we have seen operating losses narrow over the past two years as premium inflation and the sale of ancillary products has benefited insurers. A move to profitability will lead to greater competition and we could see further price deflation as a result. The impact of the ECJ ruling on gender will start to filter through into the New Year and it will become much clearer how motorists will be affected by the new prices. These changes in the market will make it more important than ever to shop around and not accept your renewal price from your existing insurer, as pricing is likely to fluctuate, particularly in the New Year.”
Hannah Jones, head of home insurance at MoneySupermarket.com said: “Flooding will continue to be a major issue for home insurers next year, especially with the Statement of Principles coming to an end on 30 June. With over 200,000 properties at risk of having no insurance as a result, this needs to be a priority for the Government and the industry. The Funding for Lending Scheme has helped open mortgage lending a little, which in turn will increase demand for home insurance for new homeowners.
“The home insurance market is currently profitable so is attractive to existing and new insurers – as a result we can expect greater competition and potentially see further price deflation in the market as a result – a great thing for consumers.”
Emma Walker, head of life insurance at MoneySupermarket.com “The impact of gender neutral on life insurance is still unknown at this stage, and we expect it will take some time to understand the true impact on pricing and the impact on consumer take-up of protection products. Behind the scenes there will be lots of challenges and discussion about how simplified products can work in practice. The role of the comparison websites will become stronger, especially as the effect of Retail Distribution Review (RDR) is felt on the financial advice market.”
Clare Francis, site editor at MoneySupermarket.com said: "Energy price rises have become an annual event over recent years and I expect 2013 to be no different. However, there are simple things people can do to protect themselves from higher bills. Firstly, switch to a fixed tariff – not only could this mean a reduction in the price you pay for gas and electricity now, you will also be insulated should we see another round of price hikes in 2013. Secondly, take measures to improve the energy efficiency of your home.
“There is likely to be increased interest in energy efficiency from government and the industry in light of the 2012 Energy Bill as politicians and providers seek to encourage us to use less gas and electricity in order to offset the additional amounts we will have to pay over the coming years to cover investment in renewable energy sources. Households should take advantage of offers such as free loft and cavity wall insulation – it can knock a few hundred pounds off your annual energy bill. And look to take other steps to reduce your consumption such as turning the heating down slightly, doing your washing at a lower temperature and having showers rather than baths. All of these things make a difference and can collectively result in significant savings.”