The future of your finances in 2008 - what's in store

With 11.7 million mortgages in existence, the cost of mortgages is a big worry for many - fortunately for those of us in that boat, base interest rates are expected to keep on falling. Perhaps not such good news for recent purchasers, house prices are expected to keep on falling as well.

Despite falling interest rates 2008 could also be a good year for savings because, from April, changes to the individual savings account (ISA) rules come into force as well as an income tax cut and the new flat rate of capital gains tax (CGT) unveiled by Chancellor Alistair Darling in his Pre Budget Report 2007, which could make long-term investment in equities and property much more attractive.

This time last year nobody was predicting the credit crunch or the demise of Northern Rock - the first run on a bank for 150 years - and few would have put money on the full introduction of Home Information Packs. Putting crystal ball gazing aside, no one can predict the unpredictable for 2008 either but there are many areas where we do know what's in store and you need to be prepared!

By preparing now and getting your wallet in order; when the time comes, you'll be at the ready to take action and give your personal finances a head start.

Do you need unbiased independent financial advice? Why not give us a call?

Interest rates to fall

The general view is that the Bank of England will reduce the base rate again and again and again and possibly again (!) this year. Some economic commentators see base rate a full percentage point lower by the end of the year and suggest that even then more cuts could come in 2009 before rates eventually rise again (as you can be sure they ultimately will).

Following on from the 25-basis point (0.25%) cut in December to 5.5%, swap rates in the City money markets have started to fall (which means cheaper mortgages for us) although lenders have been slow at cutting their mortgage rates - indeed at time of writing some had yet to move in the wake of December's base rate cut while others had failed to pass on the full reduction.

Nevertheless, the prospect of lower interest rates bodes well for those on short-term fixed rate mortgages due to revert from the fixed rate to the lender's standard variable rate this year. The expected falls in the base rate will certainly mean that mortgages will get cheaper over the year - if you can get the deal you want, that is.

Are you looking to remortgage to get a more competitive interest rate?

Those with a good credit record should have access to plenty of competitive loan deals but those with an adverse credit record will find that rates have jumped sharply for sub-prime mortgages and those of us in the middle may find our room for manoeuvre sharply curtailed as a result of tighter lending criteria.

Also, if you are coming of a cheap mortgage deal, before switching to a new deal, be sure to check out the arrangement fees. In general, mortgage arrangement fees have doubled over the past two years to around £800. Basically the higher the arrangement fee, the cheaper the short-term interest rate. You don't need to be a maths genius to realise that lenders are trying to claw back through fees what they're giving away through low interest rates.

Sure about your mortgage choices? If you're not and you need someone to talk to, why not call us for independent, unbiased mortgage advice.

House prices to fall

You have to choose a mortgage deal that suits you. You may find the only way to avoid hefty fees is to take out a longer-term mortgage offering. Beware of over-committing yourself because house prices are expected to fall. The "experts" are talking about drops of 3% to 10%.

Prices have already slowed substantially. Nationwide reported that in the fourth quarter of 2007 house prices rose by 6.9% for the year against an annual rate of increase of 9.3% in the third quarter. Halifax reported even slower growth with the annual rate halving to 5.2% against the third quarter.

Moneyextra's mortgage calculators can help you work out what you can afford.

Fixed rate savings looking good

On the savings front, following December's base rate cut, some savings providers appeared to be enthusiastic about cutting their savings rates on variable rate savings accounts. However, despite the fact that interest rates are falling, saving could become more attractive if you are prepared to lock your money away. As borrowing in the City has got tight and more expensive, lenders will turn to us as a cheap source of funding. That's why they are prepared to pay if can can afford to lock your money away in a term account.

Which is the best savings account for you? Let Moneyextra guide you to the right choice with our comparison service.

09 January 2008 © Moneyextra.com

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Our senior editor Robin Amlôt recommends you should consider taking independent financial advice before acting on any article. Please contact us for help with your individual circumstances if any assistance is required.