Merger building societies offer double brand protection

December 2, 2008 | posted by Pam Atherton in Savings | comments (0)

The recent rash of building society mergers has raised the question as to whether savers have compensation protection of one, or both, societies post merger, if savers have accounts with both institutions.

In response, the Financial Services Authority has made a temporary change to the rules lasting until September 2009 whereby merged building societies can keep, for the time being, double the normal level of saver protection of £50,000 against insolvency which is payable under the Financial Services Compensation Scheme (FSCS).

The aim is to reassure individuals with savings in two merged societies who might otherwise have moved their money to stay below the current £50,000 compensation limit.

But newly merged societies will have to continue using the name of the dissolved partner in order to benefit from the new rule. This means that where a saver has accounts with two merging societies - and both brand names are retained - they will be protected up to £50,000 per brand. For joint accounts, protection will be £100,000 per brand.

The credit crunch and losses made on commercial property have recently pushed several small societies into mergers.

The Nationwide, which is taking over the Derbyshire and the Cheshire, said it would take advantage of the new rule. This means that existing customers of the three societies could have protection for a total of £150,000, where an individual has £50,000 invested in each of the three societies.

For depositors with joint accounts, their compensation cover will be up to £300,000 if they have savings in all three societies.

The Barnsley building society’s takeover by the Yorkshire, and the Scarborough by the Skipton - will also qualify. 

The FSA said it would be up to any merged societies to decide if they wanted to take advantage of the temporary rule change and savers will only benefit from the extra insolvency protection if they had been savers with both societies before they merged.

The FSA is planning to consult in the New Year on further changes to the level of cover offered by the FSCS. Many savers have been alarmed to find that their savings are normally only protected up to £50,000, per authorised institution, not per brand.

For more ont the top savings rates, visit Defaqto’s best buy tables:
http://www.defaqto.com/consumer/savings-accounts/instant-access-accounts.aspx
http://www.defaqto.com/consumer/savings-accounts/regular-savings-accounts.aspx
http://www.defaqto.com/consumer/savings-accounts/cash-isas.aspx
http://www.defaqto.com/consumer/savings-accounts/notice-savings-accounts.aspx
http://www.defaqto.com/consumer/savings-accounts/term-accounts.aspx
http://www.defaqto.com/consumer/savings-accounts/childrens-accounts.aspx

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Banks and building societies slash savings rates

November 20, 2008 | posted by Pam Atherton in Banking, Savings | comments (0)

Savers face drastically lower returns as banks and building societies slash their savings rates by up to 2.55 per cent, following the recent cut in base rate to 3 per cent.

More than half a dozen savings account providers have already cut rates, with over half of these reductions matching, and in some cases, outstripping, the base rate reduction by an additional 1.05 per cent.

For instance, Lloyds TSB has reduced its Easy Saver 2012 accounts by 1.5 per cent and term deposits by up to 2 per cent.

Capital One Savings has similarly cut its variable rates and base beater savings account by up to 2 per cent,  as has Norwich & Peterborough building society on its Gold Savings and Family Regular Savings accounts.

Anglo Irish Bank has reduced its popular range of fixed rate bonds by up to 2.40 per cent.

So what should people be doing to secure the best returns?

David Black, Defaqto banking consultant, says: “Use your cash ISA allowance of up to £3,600 as ISA rates tend to be slightly better than standard rates and the returns are tax free. If you have spare cash that you don’t need for a year, go for a fixed rate bond, such as Kent Reliance building society’s  6 per cent one year bond.

“Most variable rates are likely to come down by 1.5 per cent and you will be lucky to get anything over 5.25 per cent. Rates are being cut and accounts withdrawn all the time so you need to move quickly to get the best rates.”

The recent Monetary Policy Committee meeting minutes show that a cut of 2 per cent was considered at the last meeting, indicating that a further rate cut of 0.5 per cent is possible, as soon as December.

After tax and inflation, the recent cuts mean that most savers will receive a negative real return. But you can mitigate this to some extent by saving via tax-free and index linked accounts such as cash ISAs and National Savings & Investment products.

To view the top rates,  visit Defaqto’s best buy tables:

http://www.defaqto.com/consumer/savings-accounts/cash-isas.aspx
http://www.defaqto.com/consumer/savings-accounts/term-accounts.aspx
http://www.defaqto.com/consumer/savings-accounts/notice-savings-accounts.aspx
http://www.defaqto.com/consumer/savings-accounts/instant-access-accounts.aspx

For National Savings & Investment products visit:
http://www.nsandi.com/
 

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Savers’ dilemma puts focus on gilts

November 18, 2008 | posted by Pam Atherton in Banking, Savings, UK economy | comments (0)

The dramatic cut in base rate to 3 per cent may spell good news for homeowners with mortgages, but for savers it could be a disaster.

For every mortgage, there are six to seven savers, and many pensioners and others on fixed incomes are dependent on the interest from their savings to top up their income.

So where can you put your money and get a decent rate of return, if banks and building societies cut savings rates by up to 1.5 per cent?

Some experts are touting gilts as the saviour of savers. Gilts are bonds issued by the Government which pay a fixed rate of interest over a set term and are considered to be safer than corporate bonds which are bonds issued by companies wanting to raise capital.

Because companies can go bust and default on their financial obligations, corporate bonds are considered more risky than gilts which are guaranteed by the Government.

Gilt managers are prediciting a return on 7 to 10 year gilts of around 4-8 per cent over the next two years. Ccompared with likely returns from banks and building societies of 3-4 per cent, gilts looks like a reasonable alternative.

But gilts are not risk free. Although you are guaranteed to get back your original investment back when your gilts mature,  prices and yields can vary significantly before the maturity date, depending on what happens to base rate and inflation.

So if you paid £100 today for a 10-year gilt with a 4 per cent yield, its face value could subsequently fall if base rate were to rise in two years’ time.

This would cause investors to flee gilts in seach of  higher returns elsewhere, thereby drving down the face value of gilts.  If you wanted to sell your gilt at that time, its sale value might be only £90, instead of £100.

Inflation is another enemy of  gilts as it erodes the value of fixed incomes. Although inflation now appears to be falling, it could re-emerge in future years, particularly with the increase in Government spending.

But if inflation and base rate fall to around 1 per cent, or even zero, as some commentators are now predicting, gilts could offer double digit returns. 

You can buy individual gilts via a stockbroker, or a gilt fund or gilt index tracker via a  fund manager. For advice on gilts, contact an independent financial adviser via www.unbiased.co.uk

For more on gilts, visit the Debt Management Office’s website:
http://dmo.gov.uk/index.aspx?page=Gilts/About_Gilts
http://dmo.gov.uk/index.aspx?page=Gilts/Daily_Prices

For the best savings rates visit:
http://www.defaqto.com/consumer/savings-accounts/instant-access-accounts.aspx
http://www.defaqto.com/consumer/savings-accounts/cash-isas.aspx
http://www.defaqto.com/consumer/savings-accounts/regular-savings-accounts.aspx
http://www.defaqto.com/consumer/savings-accounts/term-accounts.aspx
http://www.defaqto.com/consumer/savings-accounts/notice-savings-accounts.aspx

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Lenders to reduce mortgage rates

November 10, 2008 | posted by Pam Atherton in Banking, Mortgages | comments (0)

The major mortgage lenders caved in to Government pressure to reduce their lending rates last Friday, following a severe ticking off by the Chancellor, Alistair Darling.

Nationwide, HBOS, the RBS/NatWest and Northern Rock will cut their main variable lending rates by the full 1.5 per cent on 1 December, to reflect last week’s cut in base rate. Lloyds TSB and the Abbey had announced similar moves last Thursday.

The Nationwide is cutting its base mortgage rate from 6.19 per cent to 4.69 per cent, while RBS/NatWest is cutting its standard variable rate (SVR) by the same amount, from from 6.69 per cent to 5.19 per cent.

The HBOS SVR will fall from 6.50 per cent to 5.00 per cent.

Lenders had come under intense political and media pressure to pass on the full 1.5 per cent cut in base rate to their customers as quickly as possible, and in full.

But the Council of Mortgage Lenders (CML) warned that the precise level of any reductions would be a commercial decision for each individual lender because Libor (the London Interbank Offered Rate) - the rate at which banks lend to each and which, in turn, affects mortgage rates - remains stubbornly high at 4.49 per cent.

Lenders also have to balance the needs of their borrower with those of their savers, who will see a steep fall in their income. Building societies are particularly reliant on savers‘ deposits as they are not allowed to borrow as much as banks can from the capital market.

Michael Coogan, director general of the Council of Mortgage Lenders, said: “I think over the next few days and weeks we will see that the banks and building societies will move by anywhere between 0.5 per cent and 1.5 per cent - the individual decisions will be on the basis of assessing what they want for their savers, as much as what they want for their borrowers.”

Almost all tracker mortgages have been withdrawn for new borrowers as lenders consider at what rates to reintroduce them.

Lloyds TSB, which owns Cheltenham and Gloucester, was the first to announce that it is to reduce the cost of fixed-rate deals for new borrowers.

Some deals for those offering a deposit of at least 25 per cent will become 0.3 of a percentage point cheaper from tomorrow (Tuesday 11 November).

The three-month sterling Libor rate - which has the greatest influence on new tracker mortgages - fell from 5.56 per cent to 4.49 per cent on Friday, its lowest level since the end of 2005.

But the rate remains almost one and a half percentage points above the Bank of England’s base rate - still well above pre-credit crunch levels.

Check out all the latest mortgage rates:
http://www.defaqto.com/consumer/mortgages.aspx

For the latest savings rates visit:
http://www.defaqto.com/consumer/savings-accounts/instant-access-accounts.aspx
http://www.defaqto.com/consumer/savings-accounts/regular-savings-accounts.aspx
http://www.defaqto.com/consumer/savings-accounts/cash-isas.aspx
http://www.defaqto.com/consumer/savings-accounts/notice-savings-accounts.aspx
http://www.defaqto.com/consumer/savings-accounts/term-accounts.aspx

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Societies face new round of carpet bagging

September 1, 2008 | posted by Pam Atherton in Banking, Savings | comments (2)

A KPMG report published last week  predicted that the building society sector could be due for another round of carpet bagging, as societies are forced to merge due to financial and regulatory pressures. The UK’s 58 building societies have withstood the credit crunch relatively  well compared to their banking counterparts,  although a few, such as Derbyshire and Cheshire, have experienced problems with commercial loans or on sub prime lending.  

But times are tough and some societies are having difficulty competing with the banks on mortgage rates because of their reliance on retail deposits for the bulk of their funding, which could become vulnerable in the event of a prolonged economic downturn. 

Nationwide recently announced it intends to set up a Dublin operation so that it can tap the European Central Bank for additional funds.  New capital requirements under Basel II regulations will also add to the pressure on societies. 

KPMG financial services partner, Richard Gabbertas, reckons that these pressures will force a number of the societies to merge with their larger peers, such as Nationwide, triggering cash windfalls for the members of the societies being taken over. 

The latest such windfall is going to the members of the Catholic building society who are set to receive a yet unstated cash payment following its takeover by Chelsea earlier this year. Anyone who remembers the building society demutualisation bonanza in the 1990s may want to cash in by opening accounts with a range of societies which they think are likely to be taken over. 

But experts says the payouts for carpetbaggers this time round are likely to be in the low hundreds and many societies now insist that you assign any windfalls triggered by a demutalisation to a charitable foundation for the first five years of membership, although this does not apply to merger bonuses. 

Defaqto banking principal, David Black, says: “It is likely to be the smaller societies which are forced to merger because of regulatory and succession issues. However, some regional societies restrict membership to local residents and some require higher minimum deposits of a £1,000 or more.” Many societies are currently offering  high rates of interest on regular savings accounts.

For details, visit:http://www.defaqto.com/consumer/savings-accounts/regular-savings-accounts.aspx

For more the top instant access savings accounts visit:

http://www.defaqto.com/consumer/savings-accounts/instant-access-accounts.aspx

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£15bn in unclaimed assets up for grabs

June 18, 2008 | posted by Pam Atherton in Banking, Insurance, Investments, Pensions, Savings | comments (0)

The race is on to reunite owners with long forgotten bank and building society accounts, as a Government Bill to reclaim ‘dormant accounts’ goes back to the House of Commons for a second reading next week.

There is an estimated £400m sitting in abandoned bank and building society accounts which the Government plans to use  to fund youth and community projects once the Dormant Accounts bill becomes law.

But the total amount of all unclaimed assets is believed to be nearer £15bn, including £466m with National Savings & Investments.

Even after the Dormant Accounts bill comes into force, forgotten bank and building society accounts can still be reclaimed by their rightful owners (or their heirs) at any time, providing they can  prove ownership.

Halifax and the Nationwide and Yorkshire building societies have launched their own initiatives in recent years to trace the owners of dormant accounts - defined as those where there has been no activity for 15 years.

To make it easier for customers to trace long lost assets, the banks, building societies and National Savings & Investments  established a free of charge website called www.mylostaccount.org in January this year to list the details of all their known dormant accounts  in one place.

Another website, www.uar.co.uk, charges a small fee but has a much more comprehensive database including occupational pensions, personal pensions, shares, dividends, unit trusts and endowment life policies as well as bank and building society accounts.

Lloyds TSB, and its mortgage arm, Cheltenham & GLcouester (formerly a building society) is the latest bank to step  up its efforts to find the owners of 120,000 dormant accounts worth £69m by employing a specialist tracing agency.

The average amount in the Lloyds’ accounts is £575, with 10 per cent holding £1,000 or more.

People forget about accounts for a variety of reasons such as moving home,  going abroad, their circumstances change or institutional name changes. 

Those who die intestate (without a will) leave no record of their assets and even those who do write  wills sometimes forget to  list all their assets so that executors cannot make a claim.
 

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New round of mortgage hikes

June 17, 2008 | posted by Pam Atherton in Banking, House prices, Mortgages | comments (0)

Mortgage rates continue to rise as lenders react to volatility in the money markets and try to avoid  being swamped with new business as their rates become more competitive.

Today, the Nationwide building society is increasing rates by up to 0.5 per cent on its fixed-rate and tracker deals for new customers and those remortgaging.
 
The average fixed rate mortgage across the market now costs 6.72 per cent, compared to 6.26 per cent at the end of June 2007.

Rates on all of the Nationwide’s fixed and tracker rates are rising by at least 0.2 per cent - the second increase in June. For those with only a 5 per cent deposit, the Nationwide is raising its two-year fix from 7.35 per cent to 7.65 per cent. 

Nationwide borrowers with a 10 per cent deposit face the biggest rise with a 0.5 per cent hike on two and three-year fixed rate deals, making the typical £150,000 mortgage around £600 a year more expensive for those taking out one of these mortgages today.

Elsewhere, Barclays’ mortgage lender, Woolwich, has temporarily withdrawn its two-year fixed-rate products from today and will be increasing fees on some offset mortgages. It blamed market volatility for the changes.

At least 14 lenders, including the Halifax, RBS, and Birmingham Midshires, increased the cost of various  fixed-rate deals last week.

Defaqto banking consultant, David Black, said: “It’s a sign of the times. Over the last year, mortgage lenders have started offering mortgages on different terms, such as lower rates with higher fees, or higher rates with lower fees. It gives people more options.  Loans-to-value have also come down and 100 per cent mortgages are now difficult to source and very expensive.”

To work out your mortgage repayments, visit Defaqto’s mortgage calculator:
http://www.defaqto.com/consumer/mortgages.aspx

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Lenders raise fixed rates, but savers have rarely had it so good

June 13, 2008 | posted by Pam Atherton in Banking, House prices, Loans, Mortgages, Savings | comments (0)

More than a dozen lenders have raised the cost of their fixed rate mortgages, further tightening the credit crunch for homebuyers.

The hikes reflect the higher cost of inter-bank lending rates, falling house prices and fears of interest rate rises before the end of the year.

The average cost of a two year fix, on a 90 per cent loan-to-value loan, has jumped to 6.75 per cent, as major lenders such as Halifax, RRS and Birmingham Midshires reprice their deals.

The Council of Mortgage Lenders says that fixed rate deals became more popular in April, accounting for 59 per cent of all new loans.

The cost of mortgages for those with only a small deposit is becoming increasingly expensive, with Abbey raising the cost of its five year fix (for those with only a 5 per cent deposit), to 7.04 per cent.

This deal  also comes with an eye watering £2,499 arrangement fee, payable upfront.

But for savers, conditions have rarely been better. Research by Defaqto’s banking consultant, David Black, shows that 13 banks and building societies are paying 7 per cent (gross AER) or more on one, two or three year fixed rate bonds, on a minimum investment of  £1,000.

Mr Black says: “It’s a rare event when fixed rate bonds paying 2 per cent above the base rate are freely available. Last year, when the base rate was higher than it is now, a handful of 7 per cent bonds were briefly offered, but these were quickly withdrawn as investors piled in. The sheer volume available now suggests that some of the current crop will be around for sometime longer.”

To compare savings rates, visit: http://www.defaqto.com/consumer/savings-accounts/term-accounts.aspx

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IFA news round up

May 30, 2008 | posted by Pam Atherton in Banking, Investments, Uncategorized | comments (0)

The FSA’s  interim feedback report on the Retail Distribution Review published at the end of April received a cautious welcome for having listened to IFAs’ concerns and for making a clear distinction between advice and sales.

Other key points in the report were that advisers should achieve minimum qualifications, possibly diploma level, but not as high as chartered status.

‘Advisers’ offering independent advice, must be ‘whole of market,’ while ‘sales’ services  would have to be on a strictly non-advised execution only, or ‘guided sales’ basis.

This would mean that multi-tied andtied advisers would be likely to fall under the sales category.

Advisers would have to operate ‘customer agreed remuneration,’ without any influence from product providers, although the FSA suggests that providers can still advance payments to advisers and recover the costs from customers out of regular charges, in a similar way to front end commission.

The feedback document also mentions the potential for some form of maximum commission agreement. Less popular was the FSA’s proposal that there should be no 15-year time bar on customer complaints.

The Institute of Financial Planning attacked the FSA for dropping proposals to separate advisers into general advisers and financial planners, saying that the distinction between advice and sales needs to go further. 

AIFA deputy director general, Fay Goddard, said there was a danger that the mass market would be predominantly serviced by sales people.

Unsurprisingly, the banks and building societies are expected to fight a vigorous rearguard action to overturn the proposals which would effectively ban tied advisers in their branches from offering general advice on pensions and long term savings to the mass market.

But everything is still up for grabs and the FSA says it is up to the industry to provide ‘market-led solutions’ that will deliver better outcomes for customers. Its final report on retail distribution will be published in October 2008.

Elsewhere, there was uproar when the ABI ditched its 10 day turn- round target for processing open market annuities, replacing it with a requirement to pay out funds by the selected retirement date.

IFAs’ anger was compounded by the publication of a FSA report severely criticising the standard of insurers’ open market option (OMO) communications with customers six months before they retire, calling on annuity providers to improve their OMO correspondence by December this year.

Tom McPhail of IFA firm, Hargreaves Lansdown, accused the ABI of being “in real danger of becoming the Comical Ali of the finance industry” and called for the OMO to be the default option, with a requirement for fund transfers to be made within five days of the relevant paperwork being submitted to an insurer.

Meanwhile, Lord Hunt’s recommendation that the Financial Ombudsman Service ‘name and shame’ the worst performing companies with regard to their uphold rate, was attacked by a former FOS adjudicator on the grounds that firms might feel pressurised to settle unjustified complaints.

But FSA chief executive, Hector Sants, appears to be keen on the idea, saying that ’naming and shaming’ can be a more powerful deterrent than imposing fines.

Elsewhere, the European Commission confirmed that automatic enrolment of members into contract-based pension schemes is consistent with EU law which will greatly simplify enrolment into both GPPs and personal accounts  from 2012.

But pensions consultant, Ros Altmann, called on the industry to break the political consensus on personal accounts because she believes the scheme is doomed to fail, due to the disincentive to save posed by means testing.

Meanwhile, Friends Provident remains in talks with various bidders for its 52  per cent stake in F&C and its wealth management unit, Lombard and Prudential is eyeing up Equitable Life’s £7bn with profit fund, having already taken on £1.7bn of its with profit annuity book.

Lord Adair Turner, meanwhile, looks set to become the next chairman of the FSA, replacing Callum McCarthy who steps downin September.

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Building societies and regulator clash over future of mortgage distribution

May 7, 2008 | posted by Pam Atherton in Mortgages | comments (0)

The future of mortgage lending could change out of all proportion as more and more consumers opt to do DIY financing, according to the chief executive of the Norwich & Peterborough building society.

Speaking at the Building Societies Assocation Conference in Manchester, Mr Bulloch said that mortgages are already being priced for risk in line with the creditworthiness of the borrower and that the UK could see the introduction of individuals knowing their own credit score and shopping around accordingly, as happens in the US.
This disintermediation of the market place is already happening here with online services  such as Zopa, a financial equivalent of eBay, which marries up borrowers and lenders on line, without the intermediation of a broker.

Elsewhere at the conference, John Howard, a non executive director of the Financial Ombudsman Service welcomed the Retail Distribution Review’s call for a separation of advice from sales, a greater role for a basic money guidance service and a streamlining of the alphabet soup of adviser qualifications which currently total  27.

“A money guidance service could provide the equivalent of the first hour’s consultation with an IFA, where the client’s financial circumstances and needs could be established. This could lead to greater consumer confidence and more business for IFAs,” said Howard.

One of the main objectives of the RDR is to break the provider-distributor link on remuneration, with FSA director of retail policy division, Dan Waters, saying that it is untenable that an agent of the consumer is paid for by the provider.

But Mr Bulloch said the RDR proposals could lead to “a real risk of creating a backward looking construct which won’t be financially viable.”  Higher statutory qualifications  for his staff would lead to higher costs and the removal of commission would make a building society network uneconomic, he said.

“We are looking for a longer term relationship with our customers than a two year fixed rate churn,” he said.

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