When your mortgage feels like a dead hand, don't count on the Compensation Fairy
CHRISTOPHER FILDES
Your sympathy and mine are invited for this week's good cause: the suffering millions who bought their house with a mortgage linked to an endowment policy. The idea was that the policy would mature and pay the mortgage off. They are now being told that it won't, or may not, or not quite. Well, tough. They must still be ahead of the game. They have bought their house on borrowed money, their tax-free gain must far exceed the shortfall on the policy, and their bank will happily lend them some more and call it equity withdrawal. None of this will prevent the consumer lobby from grousing that they were mis-sold their policies and deserve a present from the Compensation Fairy. I am more concerned for the bright sparks who now buy their houses on interest-only mortgages, meaning that they make no provision for paying the money back. They must assume that house prices can only go up. Either that, or they believe in fairies. Not so long ago there were believers who thought that share prices could only go up and that the biggest risk was to be out of the market. Investors had learned to look at the total return on their money. They would add their dividends to their capital gains and expect a return of, say, 10 per cent, on average over the years. At compound interest, 10 per cent can make you rich and pay for a jolly good pension. All you have to do is to find it. Returns like this used to be in the shops but now seem to have sold out. Barton Biggs, the sage of Morgan Stanley, observes that when shares fall for two years running and may be on their way to a third, the sums will need re-writing.
All change
CHARITIES and pension funds in America have been assuming returns of 9 per cent or more. The general guess is that they will be lucky to see more than 7 per cent from bluechip shares over the next decade, and Morgan Stanley's guess is 5.4 per cent. On these figures, everything changes, here as in America. Pension funds will no longer be seen to have bottomless pockets and books of blank cheques, and employers will have to think twice about the pensions they promise. (British Airways is only the latest to close its scheme to new entrants.) Endowment policies will not necessarily pay off like fruit machines whenever a weary old mortgage needs to be tidied away. Mortgages may again be what their name implies: the dead hand from whose grasp we must labour to free ourselves. In the last few years of the old century, share prices and house prices stoked up our wealth without too much effort on our part, or sacrifice. If the years ahead prove to be harder, it will be no use complaining to the Compensation Fairy.
Gresham's Lease
NOW on the market for the first time since 1596: the Royal Exchange. There it stands, four-square in the heart of the City, founded by Sir Thomas Gresham, grandly rebuilt by Sir William Tite and sometimes confused with the Stock Exchange, its gawky neighbour. Now Gresham's heirs, who are the Corporation of London and the Worshipful Company of Mercers, have instructed DTZ to ask L23V: million for a long leasehold. This includes five floors of offices, once the home of Royal Exchange Assurance, but not the smart new shops in the Exchange's courtyard. I would ask the Corporation to throw in a change of use, and would convert the
offices into flats ideal for the City man who wants to buy a shirt, a pair of shoes and a glass of champagne on his way out to work. In 2115 the Exchange reverts to Gresham's heirs, who were taught by the founder that bad money drives out good, and have learned to take the long view.
Out of the sandwich
THE Mercers are the City's senior livery company and not short of a rent or two, but their half of the proceeds from the Royal Exchange will come in useful, because they are going to build themselves a new hall. They have been on the corner of Cheapside and Ironmonger Lane since the fourteenth century, but they lost one hall in the Great Fire and its baroque successor when fire rained down upon the City. On the bombsite
the Mercers built an office block with a hall tucked away inside it, like smoked salmon in a sandwich. After the war, many bombed-out livery halls were rebuilt to look like branches of the Midland Bank, and this one was no worse, but not inspired. Now the Mercers plan a new office building on Cheapside and a new, free-standing hall behind it. Their architect is Giles Downes of Side11 Gibson, who designed much of the new work after the fire at Windsor Castle. His hall, so he intends, will be a modern building of timeless elegance, complete with a dome on its roof. I salute his and the Mercers' ambitions.
Pru's Who
THE Prudential is looking to the Bank of England for its next chairman. I now learn that its sights are on David Clement', the Deputy Governor, whose term runs out later this year. (Not, as I was suggesting last week, Ian Plenderleith, the Bank's market supremo. My mouse under the Court Room table must have picked up the wrong crumb.) The stout old Pru has had its wobbles lately — an ambitious and unsuccessful American takeover, a chairman whose other commitments included Marconi, and an attempt at executive alchemy which would have turned its top brass into gold. What it needs is a steadying hand, and now it seems to have found one.
Love unrequited
OUR customers love us, the banks say. Up before the House of Commons Treasury Committee, their chief executives relied on surveys which showed that the customers were happy with their services, or very happy. They were asked to mark themselves for responsiveness, and Fred Goodwin of the Royal Bank of Scotland went for 99.8 per cent. Peter Ellwood of Lloyds said: '100 per cent.' rll see your 100,' said Barclays' Matt Barrett, 'and raise you.' The point they have missed is that their dissatisfied customers cannot get through on the telephone to say so, and their letters are piling up in the banks' in-trays. I have been saying that the first bank to offer club-class service — modest comfort and open lines of communication — would be overwhelmed in the rush. The committee would be happy, too, or very happy.
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