You could describe 2007 in many ways, but staid and boring would certainly not be among them. From interest rate hikes to credit crunches and failing banks it’s certainly been a dramatic year, and one, in many ways, that is best put well and truly behind us. With 2008 knocking on the door, MoneyExpert.com rounds up the highs and lows of the year just past.
Give me some credit
By some clear margin the award for most commonly banded about phrase goes to ‘credit crunch’. With major banks on both sides of the Atlantic increasingly anxious over the levels of sub-prime debt they had on their books the wholesale money markets stalled, and the lending mechanisms necessary for the functioning of banks around the world began to creak. What’s more they’re still not running smoothly by any means.
For us, the credit crunch has meant belt tightening from credit card and mortgage providers alike. In October, MoneyExpert.com reported that credit card rejections had risen 17% in six months, and mortgage rejections had climbed by a staggering 60% in the same period.
A rock and a hard place
Obviously the most directly affected were savers with Northern Rock. The queues that formed round assorted blocks represented the first run on a British bank since 1866, sparking some tricky questions for both the Bank of England and the Government, not to mention the hierarchy of Britain’s fifth largest mortgage lender.
After some nervy days the Treasury stepped in to re-assure savers of the safety of their money, but the damage was well and truly done, and the bank now has the likes of Richard Branson knocking loudly on the door.
Rates that grate
With lenders tightening their fists 2007 rapidly became a tough year for borrowers, and things weren’t helped by the Bank of England consistently pushing the base rate up through the first half of the year. Standing at 5% at the end of 2006 the rate climbed steadily to 5.75% in July and remained there with great tenacity until Governor Mervyn King and his panel finally succumbed to pressure in December and dropped it to 5.5%.
Some relief for borrowers was gladly received and many have speculated at further cuts in the New Year, though a quick flick through the history books to 2005 suggests things may not quite work out that way.
Homes sweet homes
With mortgages increasingly hard to come by and interest rates remaining high throughout the year, the rocketing housing market of recent years at last began to slow. Gradually flattening out throughout the year the last few months have witnessed real term falls in house prices in many parts of the country, with December figures proving the worst yet.
Many fear that the recent drop in the base rate won’t be enough to bolster the faltering market, and with houses now taking on average 8.3 weeks to sell, the longest since 2001, they could be right.
With high interest rates and the credit dramas of 2007 inflation was the one area kept in relatively tight order. The retail price index in the year to January was 4.2 and hovered around this figure reaching 4.4 in June, before dropping considerably in July. But with the Bank of England checking interest rates and eventually cutting them inflation has once again begun a steady climb. With talk of the Bank making further base rate cuts in the New Year, an inflationary headache could follow hot on the heels of any Christmas hangover.
A better inheritance
Perhaps the most political of financial stories in 2007 was the debate over inheritance tax, with the Tories making some grand promises, only for Labour to dispel them as unrealistic. George Osborne, the Shadow Chancellor, pledged to raise the threshold for the tax to £1 million, a staggering increase from the current cut off level of £300,000. Whether Mr Osborne’s pledges are realistic or not such a policy change would mean massive savings for families across the country. Watch this space!
A better year ahead
Given the tumult of the past year it would perhaps be a little foolhardy to make any concrete predictions for 2008, but there are trends that look set to continue. The base rate’s certainly not going to be going up any time soon. Whether it hovers at its current rate or falls again as many are predicting depends on how cautious the Monetary Policy Committee are feeling. MoneyExpert.com would wager it won’t be falling quite as fast as some would have you believe.
The credit crunch certainly lingers on and the effects will still be felt in 2008. Sub-prime debt has become a real anathema for major lenders, and so credit card companies and mortgage providers are likely to remain cautious, making borrowing a trying business.
The housing market doesn’t seem by any means to have come through the worst of it, and a further slowing of price increases looks more than likely. Good news for first-time buyers at least!
So all in all things have been less than fantastic in 2007, and the path out of the woods in 2008 isn’t all that clear. But whatever the situation MoneyExpert.com will be close at hand to give you the best advice for an excellent year.