Money Insider: Isa industry is put under the microscope

Consumer Focus this week submitted a super-complaint to the Office of Fair Trading (OFT) regarding the way the cash Isa market operates, including the difficulties consumers face when choosing or transferring an Isa.

The content of the campaigning group's complaint isn't really anything new – we know that many of the best rates are underpinned by a short-term bonus, that the best accounts won't permit transfers of previous year's allowances and that the transfer system can take weeks instead of days in some cases.

However, the Government introduced these tax-free incentives in 1999 to encourage Brions to save more, and the fact that these shortfalls are putting some people off Isas means the OFT needs to take this submission seriously and give it the time and attention it deserves. As we approach the end of the tax year, business has reportedly been brisk for companies offering equity Isas, with many providers remaining open over the bank holiday weekend to cope with last-minute demand.

It seems there has been plenty of interest in cash Isas too with Santander no longer taking online or telephone applications for its 3.50 per cent table-topper – a branch appointment is necessary if you want to grab a piece of the action at this late stage.

Unfortunately, those who had the Santander Flexible Isa on their shopping list for the cash element of their 2010-/11 tax-free savings allowance will be disappointed to learn that the rate will be 0.30 per cent lower at 3.20 per cent from Tuesday.

With its nearest rival, Barclays, paying 3.10 per cent with its Golden Isa 2, Santander has pegged its rate at 3.20 per cent and so maintains best buy status for variable products. However, if you are not worried about access to your cash, and can deposit the full allowance of £5,100 in one hit, you can get an even better 3.25 per cent fixed for one year courtesy of the Coventry Building Society, although transfers in are not permitted.

Another change that will disappoint Isa shoppers is the decision from Leeds Building Society to restrict its very competitive 4.60 per cent five-year cash Isa to new money only and that it will no longer allow transfers in after today.

Whilst you can get 5 per cent over five years with Yorkshire Bank, it doesn't have the flexibility of penalty-free access to 25 per cent of your capital that you can get with the Leeds Building Society offering.

Mortgage market primed for shake-up

The property market has been subdued during the first quarter of 2010 with the end of the stamp duty holiday seeing transactions rushed through in December followed by the extreme weather keeping transaction levels low during much of February.

Whilst there was a fall in prices of 0.8 per cent in February, this was all but reversed with a 0.7 per cent increase for March, as reported by the Nationwide Building Society this week. Experts are still predicting that even though the housing market has lost some of the impetus seen in the latter part of 2009, prices are expected to remain fairly flat over the remainder of this year.

In the mortgage market, the Business Secretary Lord Mandelson this week announced a major expansion to the breadth and range of financial services offered by the Post Office, including the provision of £180m of new funding.

As part of these measures the Post Office will offer a new 90 per cent loan-to-value mortgage product aimed at first-time buyers and will aim to double the value of its mortgage book in 2010-11.

Ramping up mortgage lending to such an extent is a big ask in the current economic climate, and the Post Office will need to offer extremely competitive rates if it is to have any chance of meeting such demanding targets.

Consumers shouldn't think that just because there's a big government push to drive volume that the Post Office mortgages will be any easier to get.

Such 90 per cent loan-to-value mortgages are already available via a number of established lenders and HSBC this week trimmed a further 0.50 per cent off its already market-leading tracker deal for first-time buyers.

The 4.49 per cent rate, which is available to those with a deposit of at least 10 per cent, comes with incentives including a free valuation, no redemption penalty and the ability to make overpayments.

Elsewhere, the aggressive pricing strategy and a wide range of keenly priced products from Yorkshire Building Society looks to be paying dividends this year with the mutual reporting first quarter applications up by 400 per cent compared with the last three months of 2009.

Andrew Hagger is a money analyst at Moneynet.co.uk