The last 12 months have proved difficult for people looking to move house or buy their first home. However, as we enter 2010 the outlook seems much far brighter. With house prices remaining firm since the summer, and the worst of the banking turmoil hopefully behind us, mortgage lenders have started to regain their appetite to lend.
At the beginning of the year, banks were understandably cautious as house prices were still falling. As a result, the best mortgage rates were often only available to those with a deposit of 40 per cent or more. Thankfully, the outlook is now more settled, rates have become increasingly attractive on the back of growing competition, and loan-to-value mortgages (LTVs) of 75 per cent and 80 per cent are becoming more common.
Although the economy may slowly crawl out of recession in 2010, unemployment is still a major concern for borrowers and lenders alike. So whilst I expect more banks and building societies to offer higher LTVs and trim rates further, the current levels of bad debts and repossessions are a stark reminder of why they won't be throwing caution to the wind and returning to the days of 95 per cent and 100 per cent LTV lending.
Tracker mortgages have been the favoured product among homebuyers this year and this is likely to continue over the next six months or so, certainly until a base-rate increase becomes more of a reality. Many customers have been content to stay on their lender's standard variable rate, however as the chance of a rate rise increases, we're likely to see the remortgage market pick up as borrowers seek the security of a new fixed-rate deal.
Turning to the credit card market, we've already seen a considerable decline in the number of providers offering 0 per cent balance transfer or purchase incentives as a way to win new business.
With bad debts still a major issue for the card industry we could well see more rewards or cashback credit cards launched as providers look to drive profit from customer spending. In 2009 we saw the Egg Money World MasterCard offering a best buy 1 per cent cashback but also controversially charging a £1 per month fee – this could well be a revenue model that other players consider in the months ahead.
With the credit and store card review by the Department of Business, Innovation and Skills (BIS) well under way, let's hope that next year signals the end of non-customer-friendly practices such as the negative hierarchy of payments and ultra-low minimum monthly repayment requirements.
Savers
With the base rate sitting at a record low of 0.5 per cent since the first week of March, the interest rates offered on variable-rate savings products have been so low that it's almost taken away the incentive to save.
Someone with £5,000 in an average instant-savings account will have accrued a measly £32 once the taxman's taken a 20 per cent slice, whereas someone with one of the many accounts paying 0.1 per cent receiving just £4 in return for their custom.
Fixed-rate savings bonds will continue to be where better rates can be found although it's difficult to see them rising from their current levels until we start to see a move in base rate, however if economists are to be believed, this is unlikely to happen until well into the second half of 2010.
On a more positive note, the increased tax-free savings allowance that kicked in for over-fifties savers in October will be available to all come April 2010. The cash element of an ISA increases from £3,600 to £5,100 whilst the overall allowance including equity-based investments rises by £3,000 to £10,200.
If the last few years are anything to go by then you'll need to be quick off the mark to secure a top ISA deal. This year, more than 20 of the best tax-free savings accounts had seen rates cut or withdrawn completely before we reached the end of May, so it's probably best to put a note in your diary for April 2010 so you don't miss the boat.
The combination of rising inflation and rock-bottom interest rates has meant that many savers are no longer preserving the spending power of their nest egg. With CPI predicted to rise from its present level of 1.9 per cent to a peak of around 3 per cent in 2010, the outlook doesn't look too rosy for savers.
With customers becoming increasingly disillusioned with low savings rates, there is a real need for more product innovation and rewards for loyalty if we are to see more people adopt the savings habit.
Here's hoping for less drama and a little more stability in 2010, but in an election year, I wouldn't bank on it.
Andrew Hagger is a money analyst at Moneynet.co.uk
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