2007 to bring mixed blessings in the world of personal finance

With 2007 just around the corner, price comparison website moneysupermarket.com offers its predictions for the year ahead across the banking, mortgage, insurance, utilities, mobile phone and broadband markets.

Banking

Stuart Glendinning, managing director at price comparison website, moneysupermarket.com, said: “2007 will be the year of the bank charges. The investigation into current accounts is going to force banks to offer lower charges on unauthorised overdrafts. As a consequence other charges will be introduced to help the banks compensate for lost revenue. People should look out for these charges or face some unexpected bills.

“In the loans industry I expect the interest rates on unsecured lending to rise. Also, due to the regulatory investigation, providers will have to tighten up the process of selling payment protection on loans and single premium ASU products will be made illegal.

“My final prediction is that the 2006 trend of best-buy-table-topping foreign entrants to the savings market will continue. This will further wound the building societies which continue to offer poor rates not in keeping with the spirit of mutuality.”

Mortgages

Louise Cuming, head of mortgages at moneysupermarket.com, said: “In 2007 I expect interest rates will rise briefly but go no higher than 5.5 per cent, and will fall back by the end of the year. The main driver of the increasing interest rates is inflation, and the fact it remains higher than Gordon Brown’s two per cent target. Therefore, the base rate will need to rise again to bring that under control.

“House prices will continue to rise at a much higher rate than average salary - circa seven per cent. However, if the Government does not continue with its drive to provide new and affordable housing stock, the ongoing lack of available reasonably priced housing could lead to overall stagnation of the housing market.

“Finally, competition between providers to acquire new borrowers will continue to escalate and will force lenders to maintain market-leading rates. The resulting price war will mean the current trend of lower rates coupled with higher fees will continue. In addition, lenders will continue to concentrate on the attraction of profitable first time buyers and home movers rather than customer retention.”

Insurance

Richard Mason, director of insurance at moneysupermarket.com, said: “From an insurance perspective the three main areas in which I expect to see the most change are home, motor and travel. The recent bad weather will undoubtedly result in buildings and contents premium rises for the most at-risk areas, and with doubts over Government funding for future flood defences, we could well see a significant increase if the insurers do not see what they believe to be a sufficient amount of funding allocated.

“2006 has seen the inception of pay-as you-drive motor insurance policies and I expect to see a rise in the number of these policies offered by other insurers in 2007. With road pricing a key feature of the Government’s transport plans, pay-as you-drive premiums will continue to be a rising trend. I also expect more ‘stripped down’ policies to come into the market, similar to Tesco Value Car Insurance, which gives slightly limited cover but at a more affordable cost.

“The travel industry and travel agents are also under close scrutiny, with insurance sold as part of package holidays looking likely to be regulated. This can only be a good thing, yet the premiums are still way over the odds for standalone policies, so I expect agents to lose some business on their insurance add-ons with consumers becoming increasingly savvy.”

Emma Walker, protection manager at moneysupermarket.com, said:“If Pensions Term Assurance is to be abolished, as seems the case following this year’s Pre-Budget Report, the industry will have to replace this revenue stream. The most likely option is for providers to increase premium costs for level term policies, so consumers lose out twice; denied a tax efficient form of life protection and then hit with more expensive premiums in the long run.

“The Law Commission’s proposals to introduce a non-contestability period into life insurance contracts will see a three year time-frame after the policy is taken when the provider has to prove non-disclosure before they decline a claim. This would hopefully cut down on fraudulent claims, but it remains to be seen whether this will have any impact on the cost of life insurance premiums.”

Utilities

Paul Schofield, head of utilities at moneysupermarket.com, said: “This year has been marked by an unprecedented number of price hikes – a total of 13 since January. Whilst domestic gas and electricity prices have increased by 39.9 per cent and 26.6 per cent respectively, wholesale prices have fallen. British Gas has announced it will be reducing energy prices next spring, yet it remains to be seen whether other providers will follow suit. I expect in many cases the impact of falling wholesale prices will not be passed on to consumers until the latter part of 2007, however, I would urge providers to act sooner.

“In the meantime we may see more people switching to online tariffs, which are particularly competitive when compared to standard deals. People have become more and more switching savvy and I expect this trend to continue while prices remain high.

“The industry regulator Ofgem has the authority to punish suppliers which artificially inflate gas prices by fining them up to 10 per cent of their turnover. For instance, Powergen stated in its results that it was benefiting from lower production costs because of the fall in wholesale gas prices, so why is the company being allowed to get away scot-free? The question needs to be asked as to when Ofgem will take action against those providers who are not reducing their prices.

“It also appears people are becoming more environmentally aware. With this in mind, I expect to see more people switching to green energy next year and a greater focus on energy efficiency.”

Mobile phones

Robert Kenley, head of mobiles at moneysupermarket.com said:“Roaming charges have been too expensive for too long, particularly the cost for receiving a call when abroad. However, it remains to be seen whether roaming charges will be slashed in 2007 or merely capped as the EU has proposed.

“We would like to see all extra charges abolished for calls within the European Union, which would mean paying the same for using your mobile regardless of whether you’re in the UK or elsewhere in the EU. In the meantime, people should check roaming costs before they head off abroad to avoid a shock when they receive their bill back in the UK. I expect that whilst charges remain high there will be an increase in the numbers of people purchasing a local country or global SIM card, as this option is can be cheaper than calling via one of the UK networks especially for frequent users.

“In 2006 Virgin Mobile launched the first broadcast TV services over mobile phones. I think Mobile TV is set to be a popular service for many people, with strong demand for television content while people are on the go. Alongside this I expect an increase in mobile broadband usage. So far this year we have seen innovation from 3 with the introduction of their X – Series which offers people a full range of mobile services including unlimited calls from their mobile, home TV and internet access and it is likely this trend will continue.”

Broadband

Jason Lloyd, head of broadband at moneysupermarket.com, said:" I think 2007 will be known within the broadband industry for the introduction of mandatory MAC codes. This is due to come into effect in mid-February. For many people this should make the process of switching between broadband suppliers much easier. However, it will also become an additional cost burden on broadband ISPs who will have to manage a system that allows mandatory MAC codes. Monthly subscriptions for broadband and charges for hardware are likely to increase across all providers as they seek to absorb the cost, and we may see even longer minimum contract terms as they try to retain customers for longer.

“We will probably see further consolidation in the broadband market in 2007, simply because some of the mid-range ISPs do not have the spending power of the largest ISPs to be able to keep up. What we’ll see is four or five big brands controlling over 90 per cent of the broadband market. It seems apparent that Tiscali and PIPEX will be the two biggest casualties in 2007 and are likely to be consumed by other groups. Unfortunately, in the long term this is not good news for people as it makes the market less competitive, but it should make the services they deliver much more reliable.

“I would expect that in 2007 there will be an increase in the use of IPTV, (Internet Protocol TV) – essentially watching television via your broadband connection. Many people now have access to bandwidth that enables them to download TV programmes or films fairly quickly, and the popularity of video on demand services is likely to grow as people realise they don’t need to rely on digital TV as the primary method for getting TV programming.

“Usage of VOIP (Voice Over IP) is also likely to double next year. At present there are just over three million people in the UK regularly using VOIP in the home, yet it is very cost effective and with more providers now offering packages which bundle VOIP into their broadband deals, its popularity is set to grow.”