CITY AND SUBURBAN
Home loans — yes, it's good news, but
not for the customers
CHRISTOPHER FILDES
Spring is sprung, interest rates are coming down, and even the building societies are offering friendly deals — but not, of course, to their regular customers. Hear the Barchester & Silverbridge proc- laim that, following the 1 per cent fall in bank base rates, its standard home-loan rate will come down in a week or two by 0.8 per cent. Then ask who pays it. Not the new buyers with their noses pressed against the window. To them the Barchester offers discounted rates, perhaps a choice, typical- ly 1 per cent below the standard rate which is the rate for people who already have mortgages with the Barchester and are stuck with them. The lender can charge what he likes, and the borrowers' only recourse is to pay back the loan. The lender will charge them for that, too, and make the penalty what he likes. Barchester borrowers will have been expected to take out an endowment policy from a life assurance company. As it happens, the Barchester has an exclusive arrangement with Consequential Life, recommends its policies and acts as its agent. With life assurance, the costs of administration and of selling vary widely. They will include the commission paid by the Consequential to the Barchester. The policyholder may be into his second year before he has anything to show for his money. Not great value if in five or seven years he moves house again. None of these figures is likely to be put in front of him before he signs upon the dotted line, any more than he will be told of the risks of a 20-year loan agreement with interest rates at the lender's discre- tion. Cosy deals like the Barchester's with the Consequential were induced by the Securities and Investments Board, which bizarrely supposed that in this way it was protecting the consumer. Its doctrine of `polarisation' was attacked by the Director General of Fair Trading, who rightly said it was anti-competitive and reduced consum- er choice. Since then the SIB has come under new management, which shows ev- ery sign of dumping this doctrine — in response, so it will explain, to public request. It has set out new tests: 'An Investor should be made more clearly aware of what kind of product he is buying, What it will cost him, how much of his Investment will work for him, and how and on what terms he can terminate his invest- ment, including a clear understanding of the penalties. Most home-loan agreements would not pass those tests.
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