Despite the general backdrop of economic doom and gloom, 2012 has been an interesting year for the UK financial industry.
There were the expected aftershocks from the financial crisis, the series of scandals that caused front-page outrage as well as some welcome and long overdue challenges to the status quo.
Join us as we take a brief look back at the events and trends that shaped the year.
Banking 2012: Bonuses, backlashes and balls-ups
Having been open season on bankers since the beginning of the financial crisis, it was hardly surprising that 2012 kicked off with a round of reprisals.
A bleak and blustery January saw the head of RBS, Stephen Hester, bow to political pressure by waiving a controversial £1m bonus. Shortly after, Fred Goodwin, the previous RBS boss who had presided over the bank’s near collapse in 2008 was stripped of his knighthood. Meanwhile, the banks were busy setting aside billions of pounds for the ever-growing flood of PPI mis-selling claims. With all those raps on the knuckles it was tempting to think that the industry might have learned its lesson.
Alas, any such optimistic thoughts soon evaporated in the summer sun as a series of mishaps indicated a worrying level of ineptitude within the industry. RBS (and its subsidiaries NatWest and Ulster Bank) were the first to drop the ball when an IT software update bodged up transactions for millions of customers in June. They were soon joined by Nationwide who managed to double charge more than 700,000 debit card users in July, while Lloyds TSB, Halifax and the Co-operative Bank followed suit in October with debit card, ATM and online banking malfunctions.
If the general shoddiness of banking services in 2012 wasn’t enough to renew your anger towards the bankers, then the fresh glut of financial scandals certainly did the job.
First and foremost was the Libor fixing scandal in which Barclays were found guilty of manipulating a key bank interest rate that influenced the cost of loans and mortgages. With six other banks under suspicion, the ongoing scandal has so far lead to resignations, arrests and humiliation for both the industry and its regulators.
Other notable scandals in a year chock full of them were the mis-selling of specialist insurance products to thousands of small businesses by the ‘big four’ (Barclays, HSBC, Lloyds and RBS) and HSBC’s recent £1.2bn settlement in the US for laundering money for “drug kingpins and rogue nations”.
If the bankers were considered overpaid and corrupt at the beginning of the year, 2012 merely added unrepentant and incompetent to their reputation. We can only wonder what adjectives will be added to the list in 2013…
Savings 2012: The rates of disappearance
While the population at large felt poorly served by banks in 2012, certain groups, such as Britain’s beleaguered savers, found themselves increasingly marginalised by the industry.
At the beginning of the year savers could easily find savings products that offered interest rates that would beat the rate of inflation. From late summer, however, interest rates across the savings market went into freefall while many products disappeared entirely. At the time of writing there are no easy access savings accounts that beat inflation and the number of savings products on the market has shrunk by 15% in the past year.
The base rate has remained at the same record low of 0.5% for over three years, so why did savings rates drop so dramatically in 2012?
The base rate has remained at the same record low of 0.5% for over three years, so why did savings rates drop so dramatically in 2012? The answer, it seems, lies with a government initiative to boost bank lending.
In August (the month the savings rates started decreasing) the Bank of England launched Funding for Lending, a scheme that allowed banks to borrow money from the government at a low rate in an effort to get them to increase the amount they were lending out to households and businesses.
Unfortunately, with all that cheap funding so readily available the banks no longer needed savers’ deposits to fund their loans; and since they didn’t need to compete for savers’ money they stopped trying to lure them in with attractive interest rates.
For UK savers, 2012 has been a harsh lesson in how the banks operate and how their bottom line is far more important than providing valuable financial services to their customers.
Alas, with another year to go until the cheap funding comes to an end, it looks like 2013 is likely to be another fallow year for Britain’s savers.
For up-to-date articles and advice on savings you can check out our full list of savings guides here.
Mortgages 2012: First rung on the ladder gets higher
Savers weren’t the only banking customers that found themselves getting the financial cold shoulder in 2012. With the banks’ risk-aversion dials cranked up to eleven, first time buyers who didn’t have whopping deposits in their piggy banks were considered too risky to touch and faced an uphill battle trying to get on to the property ladder.
Back in January the stagnant housing market witnessed an uncharacteristic increase in first time buyer mortgage approvals as they rushed to purchase property before the 1% stamp duty holiday ended. However, subsequent government schemes and incentives to boost first time buyers’ prospects, such as NewBuy and the aforementioned Funding for Lending scheme, had dispiritingly little influence over the course of the year.
Consequently, 2012 saw a resurgence in the buy to let market as financially viable property investors stepped in to snap up the houses that the first time buyers could not secure. With all those first time buyers being forced to rent, the increased demand for rental properties pushed up the average rental costs to record levels in 2012 – hitting a peak of £744 in October.
Our concern, shared by many financial commentators, is that the trends which emerged in the mortgage market in 2012 point to a worrying future in which a whole generation of young people are doomed to a lifetime of renting at increasingly exorbitant prices.
Only the rich will afford to buy houses and they will then rent them to those who cannot raise the deposit.KYM press release Oct 2012
We spelt out these concerns in October in a call to action for the banks to boost lending to first time buyers: “Only the rich will afford to buy houses and they will then rent them to those who cannot raise the deposit. The rent prices will then increase to reflect demand, imposing further restrictions. The banks were not solely to blame for the economic crisis, but we do believe that they owe a debt and have a responsibility to help the country its continued recovery.”
Whether or not the banks heed this call, 2013 is likely to be another tough year for first time buyers.
For the latest articles and advice on property matters you can check out our full list of mortgage guides here.
Loans 2012: Payday pays the price
Concerns over the astronomical interest rates and exploitative practices of some payday loan lenders had been raised by politicians and charities for years but investigations into the industry always let them off the hook (see the OFTs ineffectual review of “high cost consumer credit” in 2010). 2012, however, was the year when the tide finally turned against the payday loan sharks.
The writing was on the wall early in the year as the first few months saw the launch of an EU inquiry into dodgy payday websites, a fresh industry-wide OFT investigation and an undercover Trading Standards operation looking into unfair practices by payday firms in Northern Ireland.
Perhaps realising that there was impending contact between some excrement and an oscillating air distributor, or maybe just worried by the impact all the negative press would have on revenues, payday industry trade bodies kindly agreed a new code in July which would offer more protection to vulnerable customers.
With mounting evidence of malpractice from a large segment of the industry, we made the decision to remove payday loan comparisons from Know Your Money around this time. It wasn’t until November, however, that we saw some tangible changes to the industry’s regulation when the OFT warned payday lenders to shape up or face fines and closure and the government announced a change in the law that would allow for restrictions to be imposed on interest rates.
With the payday loans thriving over Christmas and financial difficulties an everyday reality for many Britons, the problem of irresponsible, exploitative lenders will not be going away anytime soon. We can only hope that 2013 will see some more steps taken towards tighter regulation.
You can read more about Know Your Money’s stance on payday loans in our in-depth article here.
Alternative banking 2012: The times they are a-changin'
After all the banking scandals, catastrophes and let downs of 2012 it was hardly surprising to see that more and more Britons turned towards ethical alternatives.
An offshoot of the previous year’s Occupy Wall Street movement, the Move Your Money campaign launched in the UK in March calling for disillusioned customers to move their current accounts out of the big five British banks. According to their recent figures many have heeded their call to action: 500,000 people moved their accounts to more ethical alternatives in the first half of the year, building societies had a 78,000 increase in savings applications and the Co-operative Bank saw a 43% rise in new accounts over the year.
It was a good year for the UK’s burgeoning credit unions too - aided by new rules introduced in January that allowed them to pay interest on savings for the first time, these non-profit financial co-operatives gained 20,000 new members over the past 12 months.
Similarly, with a boost from government funding the peer-to-peer lending market also took off in 2012. Companies such as Zopa, who now arranges over £8m of new loans every month, showed that the peer-to-peer lending was an efficient and viable alternative to the traditional banking. You can read more about peer-to-peer lending in our guide here.
If these positive trends continue over the coming months, 2013 could be the year that alternative financial institutions cement their position in the mainstream.
For more on alternative banking you can read our full guide here.
Let us know what financial stories stood out for you in 2012 – and what you’re predicting for the next 12 months – in the comments thread below.