This is Money Blog

Standard Life: with-profits misery

February 23 2007

Standard Life, once top of the pile of with-profits providers, has sunk disastrously over the years. The price of past mismanagement is now horribly plain.

Here's a sample of 2007 payouts from Standard's big rivals - and Liverpool Victoria, whose returns are best of all:

Provider                      Payout

Liverpool Victoria          £63,905

Prudential                    £49,492

Norwich Union              £47,904

Standard Life               £38,054

Endowment payouts based on contributions of £50 per month over 25 years, maturing 2007. Figures provided by Liverpool Victoria, February 22 2007.

How can such a gap have opened up - particularly when, within recent memory, Standard Life was viewed as one of the best with-profits companies?

The answer lies in the devastating consequence of Standard Life's massive exposure to the stock market during 2000-2003, when share values plunged.

Sure, during that period other companies, including Liverpool Victoria, also had exposure to equities and so lost money, too.

But those other companies stuck with the stock market and so have bounced back magnificently since.

Standard's bosses, on the other hand, led by the insurer's disgraced former chief executive Iain Lumsden, left, were gambling on the markets with money they could ill afford to lose. When share prices really hit rock bottom, Standard was forced to sell its shareholdings - the bosses had effectively bust the bank - and it hasn't participated in the recovery since. It's a terrible tale of bungled and reckless management, for which policyholders are patently paying - years later.

I suppose the slender consolation - for which Lumsden and the other architects of the mess can claim no credit - is the fact that Standard's shares have performed nicely since the company was floated last summer. That, at least for the policyholders who kept their shares when the company demutualised, is some good news....

- Richard Dyson

Norwich Union windfalls: all your questions answered

Over 50 people have replied to my two blogs on the subject of potential windfalls being paid to with-profits policyholders of Norwich Union and (possibly) Prudential.

It's no wonder: there is big money at stake. Policyholders could net thousands of pounds each.

I've tried to address your questions in a general way in the blog below here, and the one before that here. And my colleagues have written more on the subject, too, like this piece by Simon Lambert here.

But many of you have asked additional questions and raised other interesting points. So I've asked Thisismoney to set up a special message board, which is now running here.

Anyone can browse the message boards, reading other users' discussions, without needing to register. But if you want to participate you need to register, which is free and quick.

It's well worth it, because you can discuss the issues more easily there than here on the blog. You can reply to one another and have a proper conversation as all posts are published instantly.

To start the conversation off, I've copied a number of the questions made in reply to my blogs into the message board and I've tried to answer several of them individually.

I promise to keep an eye on the boards in future too, and try to find answers to other questions as they crop up. But hopefully the message board will allow other people - better informed than I am - to chip in and provide their own answers and replies.

So if you've got any questions, thoughts, or anything at all to say on the matter of with-profits windfalls whatever, get to the message board and contribute right away here.

(All I'd ask is that if you want to contribute and you are employed by either Norwich Union or the office of Clare Spottiswoode, the Policyholder Advocate, that you're upfront about it!)

Best wishes and thanks for the interest you have shown so far,

Richard Dyson

With-profits windfalls - the 90/10 question

Prospects of windfalls worth thousands of pounds being paid to Norwich Union and Prudential savers have raised hosts of questions about the fairness or otherwise of these payments.

Based on some comments and questions from readers, I'm suspecting that in what I've written in my blog below and elsewhere on this site, I have failed to make absolutely clear what's at stake.

Norwich has a pot of £4 billion 'spare' assets. The Pru has a pot of nearer £10 billion. According to the rules, returns from these assets must go 90 per cent to policyholders (that's the endowment, bond, or pension policyholders) and ten per cent to shareholders (that's mainly big city institutions).

But Aviva (that's Norwich Union's parent company) wants to set things up differently in future. It wants to control this money completely, and 'buy' - for the best possible price - policyholders' rights to their future returns. Richard Harvey, the boss of the company, pictured, wants to strike the best deal he can for shareholders. He wants to pay the smallest windfalls he can possibly get away with to policyholders, and he wants to exert maximum control of the funds for shareholders. That's just his job.

Policyholders are pitted against shareholders in fighting over this £4 billion, and I'm sure I don't need to spell out which group holds all the cards.

Hence the role of the policyholder advocate.

In the past, when there wasn't a policyholder advocate (such as in the AXA case), the company could pretty much offer policyholders anything in lieu of their rights to the money. Most policyholders, understandably, were prepared to accept less than a fair deal either because they didn't fully grasp what was at stake (who could?) or, more probably, because they thought that a bird in the hand....

But the question on policyholders' lips now, surely, is:

If the rules say that policyholders should get 90 per cent and shareholders only ten per cent, what's the debate all about? Why doesn't Norwich Union just pay it out in that proportion? 

There's an easy answer to that question: the shareholders and Aviva's board are greedy so-and-sos. They control the money, in the sense that they decide whether it gets paid out at all. And, with that fact as their ultimate bargaining chip, they can demand more than their ten per cent share.

Mick McAteer, a finance specialist who used to work for Which? fighting consumers' corner, made a good point to me last week. He said: 'Most of Norwich Union endowment policyholders face a shortfall on their mortgage. In the light of that, you have to ask what on earth the company's shareholders are doing trying to argue for a bigger slice of the money for themselves.'

Well, yes, quite.

Policyholders might also want to question quite how much power is really wielded by the policyholder advocate, Clare Spottiswoode, on their behalf. In waging war with Richard Harvey and his shareholder chums, Spottiswoode starts from the unequal position of not ultimately controlling the money. Even if she says that any proposed deal looks rotten, she can't stop the company from going ahead and offering it to policyholders.

Policyholders have no choice but to place a lot of trust in her.

A few notes on who will get Norwich Union windfalls, and who won't:

A lot of people are asking whether or not their policy qualifies for a windfall. Basically, if you received a letter telling you about the deal, then you're probably in line for one.

If you received windfall shares when Norwich Union demutualised, then you probably won't get another windfall now.

What if your policy matures? To be eligible, your policy had to be in force on November 21 2006. If your endowment or pension naturally reaches its maturity after that date, you will still be eligible for windfalls, if and whenever they are paid. If on the other hand you encash your policy early, you will make yourself ineligible. With-profit bond policyholders will not get windfalls if they encash their investment before windfalls are paid.

Hope that helps. Thanks for your comments - do keep them coming.

- Richard Dyson

Norwich Union windfalls - the battle begins

January 14, 2007

The battle lines around those policyholders who will, and those who won't get windfalls, if and when Norwich Union successfully distributes its £4 billion 'inherited estate' - are being drawn.

And, if last week's first public policyholders' meeting on the issue is anything to go by, it's going to get bloody.

Windfalls for some Norwich Union with-profits policyholders are in the offing because the insurer's parent company, Aviva, wants to re-distribute a vast pot of £4 billion 'inherited assets'. For more on the background to this, read here.

It's serious money. It could mean big windfalls (that's thousands of pounds) for many of the estimated 1.2 million eligible policyholders.

But it's not yet clear who will get what. Should policyholders who have put the most into their endowments or bonds or pensions, over the longest period of time, collect the biggest windfall as a reward? Or should it be the newer customers, whose future is tied up with Norwich Union for longer, who get the most, because they have the most to lose over time?

The woman who will play a major part in deciding is policyholder Advocate Clare Spottiswoode, pictured. Last Wednesday she fielded strings of questions from worried and sceptical policyholders in the first of the five national roadshows that she will conduct this month and next. (For details of how to attend, visit Policyholderadvocate.org)

But you can bet that what was on the top of most policyholders' minds was the money. How much they'd get, and when they'd get it.

For now Spottiswoode's job is relatively easy. She can claim, quite reasonably, that she is listening to all policyholders' points of view. But soon her role will get nastier. She will have to tell some groups of policyholders why she has decided that they ought to get less of a windfall than others.

Policyholders last week asked some difficult questions - to which, in some cases, Spottiswoode didn't have answers. Here are two of the most commonly asked:

"If this £4 billion pot of spare assets has been sitting around for so long, why haven't policyholders been given more, and better, bonuses?"

Spottiswoode didn't absolutely know the answer to this. But the gist of what she said - along with help from an actuary who works with her - was that this £4 billion originated largely from policyholders, now dead, who had not been paid out enough money when their policies matured back in the 1960s and 1970s.

The money hasn't been touched since then because Norwich Union's parent company Aviva needs policyholders' permission to use it. That's what this process is all about. But Spottiswoode later told me that she needs to, and will, establish for sure that the money has not been used at all to date to benefit policyholders.

"How do we know that the money is only worth £4 billion. Mightn't it be even more?"

Good question from someone who evidently knows that insurers are as trustworthy as a rope bridge in an Indiana Jones movie. Spottiswoode said: " Don't worry, I'll check. I'm getting the raw data in March, which is when the numbers haved to be filed to the regulator, and with the help of accountants KPMG I will work out whether £4 billion is correct."

Other policyholders asked less crucial questions, for instance about why the Policyholder Advocate's office employed call centre staff based in India. (The answer to that one, predictably, is that it's cheaper.)

No-one asked who was paying Spottiswoode's wages and other costs or how much it would come to. But since there has been some comment on this in the papers, one of Spottiswoode's colleagues explained that if divided among all the eligible policyholders, the bill for Spottiswoode would come to 23p each. If the deal goes through, policyholders will foot the cost.

Keep your comments and questions coming, using the tools below (your email addresses aren't published, and you can post under any name). The Norwich Union windfalls - which if they come at all will not be paid till much later this year - are going to be good news for a lot of people. But much could go awry between now and then.

Me, my colleagues on Financial Mail and those on Thisismoney will, between us, give you the best coverage you'll find anywhere in print or on the web. So do stay tuned.

- Richard Dyson

Multiple sclerosis PC's case is lesson to insurers

For ten years, police officer Gary Dimmock's doctors thought he had multiple sclerosis. They wrote as much in his notes. But they never told him.

Now, after a legal battle, his East Sussex NHS trust has admitted this was not right. He's been paid over £10,000 in compensation.

This story is powerful ammunition for changes to the way health and life insurance is sold.

As my colleagues and I have reported for years, insurers expect people to complete insurance applications honestly and completely. But the insurers don't usually bother to look at doctor's notes at the time of application. (Too expensive, they say.)

The insurers only bother to call in the doctors' notes when a claim is made. At that point they spare no expense in trying to find a discrepancy between what the policyholder said at application, and what appears in doctors' notes. A discrepancy will often mean that the claim can be thrown out.

What would have happened in the case of PC Dimmock, right? He would have told his insurers one thing - and his medical notes would have contained something different , and far more sinister.

His story may be extreme, but our experience of investigating cases on behalf of readers shows that the phenomena of patients not knowing what is written on their doctors' notes is far from uncommon.

And it often results in claims being thrown out. Read about these cases, for instance, here. I've described the problem in greater detail here.

Recently, though, the Commission for Law Reform has suggested that UK law be changed by the introduction of something known as 'non-contestability'. Such a clause in an insurance contract would limit the insurer's ability to scrutinize previous medical records once a fixed period of time had elapsed since the cover was arranged (read more here). It's a good idea - and overdue.

As PC Dimmock's case makes horribly clear, patients often don't know what their medical notes contain.

- Richard Dyson

Painting the Post Office out of history

Post offices are being closed down everywhere and the closures trigger tidal waves of criticism (see Financial Mail's and Thisismoney's campaigning coverage, here).

Post Office bosses must hate the bad PR caused by thousands of empty former post office shopfronts everywhere, advertising their betrayal of the neighbourhood.

Answer? Reach for the paint pot.

Take this former post office branch near The Oval cricket ground, south west London.

It shut last year to a barrage of local protest, including objections from MP Kate Hoey, in whose Vauxhall constituency it falls.

The shop is still untenanted. But as if to ensure that passersby can't connect the dismal, grilled facade with the treachery of the Post Office, someone has carefully painted out the word 'POST' with (slightly mismatched) green paint.....

- Richard Dyson

Could you afford to buy the house you live in?

Roaring property inflation, set against far lower wage increases, mean that a record number of homeowners would not be able to afford to buy the property they live in, at today's prices.

At least, that is my guess.

The truth is no-one knows for sure what proportion of homeowners could buy their own homes today.

I phoned Martin Ellis, right, the property and economic guru who works for Halifax, and asked him to guess how many of Halifax's borrowers could afford today to buy the homes they owned.

'It's a great question and I don't know the answer,' he said.

No measure exists of the phenomenon.

The nearest data that could reveal the answer is the houseprice/earnings ratio. And at 5.5 (ie the average house costs 5.5 times the average wage) this ratio is at its highest ever, Martin Ellis says.

The question is important because it gives a clue as to future volumes of transactions. There will always be a group of homeowners - such as pensioners - who would be unlikely to have the income to afford to buy the homes they own. But if younger families can't afford to move up the ladder, transaction volumes - and ultimately prices, too - should flatten or fall.

Maybe this is happening in some parts of the country already. It does not appear to be happening in London and the South East. Vast price rises over the past year here mean many recent buyers couldn't afford their homes today - mere months after they moved in. Their wages will have to rise dramatically just to get them back to the position they were in when they bought.

I certainly could not afford to buy the home today that I bought in August 2005. And when I look at my neightbours, most of whom seem successful and prosperous enough, I reckon the same is true of them.

Could you afford to buy your home today?

- Richard Dyson

Lender offers over 7.5 times income to mortgage borrowers

Want the biggest mortgage ever? This may be where to find it.

Pretend you are a mortgage broker and plug your details into this calculator here.

Depending on your income, and the interest rate available (you need to click the 'i' button for the rate card) you can be offered anything up to 7.53 times income.

Fantastic? Ludicrous? Criminal? You decide.

The calculator is hosted by First National, part of GE Money. GE Money's website has plenty of worthy guff about responsible lending, etc, and no doubt it could argue that lending someone seven times their income on a variable rate mortgage is a perfectly sensible business.

How the sums work out

Take a couple with no other debts earning £25,000 each. After tax and National Insurance that's a monthly income of £1,570 - or £3,140 between them. Assume they have no debts and a big deposit.

Enter their details and.... "From our calculations we may be able to lend up to...  £304,589 on a capital repayment basis.... and £376,506 on an interest-only basis."

What’s the mortgage going to cost?

By my reckoning, a £376,506 interest-only mortgage charged at 6.64 per cent (that's GE's cheapest rate for borrowers with the best credit profile and the biggest deposit) is £2,083 per month.

And a £304,589 repayment mortgage at 6.64 per cent works out at £2,108 per month..

That would mean that in either case, over two thirds of the couple's after-tax income was being gobbled up by mortgage bills - linked to a variable mortgage rate, mind.

What if the rate goes up? Let's say it goes up by a quarter point to 6.89 per cent. The couple's monthly payments would then rise to £2,156 for the repayment or £2,161 for the interest-only option. That makes their mortgage almost 70 per cent of their monthly post-tax income.

If rates rise by half a percentage point, pushing monthly payments over £2,200, then this couple would be spending over 70 per cent of their after-tax income on their mortgage.

I think they might be in trouble by then.

Fascinatingly, GE's blurb contains the following: "An interest-only mortgage must be backed by an adequate investment vehicle (e.g. Endowment, Isa Pep)." Ah. So that means that out of the 30 per cent of their income that remains after paying the mortgage interest bill, this couple needs to find money sufficient to invest in a vehicle that will produce a lump sum to pay off their £376,506 mortgage capital debt.

Good, prudent advice from GE Money.

Question is, what would that leave them to eat?

- Richard Dyson, Financial Mail

How to post a comment

Housing market: prices soar, sales plunge

Latest house price data from online agency Rightmove for October shows asking prices continuing to soar.

Nationally, prices are up two per cent in the past month - or 11.5 per cent over the past year.

The number tallies with the FT's house price index, published on the weekend, showing annual growth of just under ten per cent. And it comes days after the Royal Institute of Chartered Surveyors warned that demand in London was so fierce that the phenomenon known as gazumping - where desperate buyers outbid rivals' offers - is back in evidence.

London is still warping the national trend upward (see below).

But rising prices everywhere are linked to falling transaction volumes, particularly in the capital.

Fewer people are selling and moving, and the shortage of supply is a major factor in driving up prices. Both operate together as a vicious cycle because as prices rise - taking stamp duty costs up alongside - more homeowners stay put, further limiting supply, and intensifying competition for available properties.

Rightmove's data itself shows that the number of properties being marketed per agent has fallen sharply. In September 2005, the average was 71 properties per agent, compared to September 2006's figure of 63.

Numbers from the Office of the Deputy Prime Minister on house sale volumes tell the same story - on a bigger scale.

The number of transactions in England and Wales has hovered around 1.4 million for many years. Since 2000, the peak was reached in 2004 with 1.793 million transactions. This dropped 15 per cent to 2005's figure of 1.531 million.

The drop in London transactions is steeper: down 17 per cent from 158,000 to 131,000 transactions between 2004 and 2005.

So where does the cycle end? With a seized-up, sticky market in which prices are very high but where very little shifts? With a correction?

Agents say that a large of number of buyers are investors, and that should be reassuring: after all, professional investors must be achieving a reasonable yield even at these prices.

But overal the picture provides ammunition for the doomsayers' arguments: they say that price rises based largely on a historically limited supply must be fragile.....

- Richard Dyson, Financial Mail

>> How to post a comment

>> www.thisismoney.co.uk/houseprices

London's house prices soar for now - not so elsewhere

House prices nationally jumped almost half a per cent in September, says property analyst Hometrack in its latest data - the fastest rate of growth for two years.

But lift the lid on the data and the warping effect of London is easy to spot.

For a start, no region other than London achieved monthly growth of more than 0.3 per cent for September. It was London's massive 0.9 per cent growth that pulled up the average.

So what's happening in the capital? Online estate agent Rightmove, which publishes its own house price index, sheds a little light. Rightmove's latest numbers show that asking prices in prime London - that's Kensington and Chelsea, Westminster and Camden (to net in the Regents Park area) - are all up by over 30 per cent in 12 months.

Central, secondary boroughs - Islington, Hackney, Lambeth - are up around 20 per cent.

These are vast numbers, so I called Rightmove to ask for the volumes of property instructions backing its data. Here's the result for August 2006: Kensington and Chelsea, 490; Westminster, 677; Camden 1,154; Islington 609; Hackney, 569 and Lambeth, 1,198.

The volumes are big enough to be credible. But these are asking prices, only, mind - not sales prices achieved.

The Rightmove numbers suggest a market in which very greedy vendors exploit a situation in which there is little supply and quite strong demand.

Back to the latest Hometrack data, and this is clearly born out. Hometrack says that over the last six months supply in London is down by about three per cent, compared to demand, which is up by more than ten per cent.

Only in London and the South East is the relationship this way round. Every other region in the country is experiencing a situation where the rate of supply is growing faster than the rate of demand.

So how long will London remain the odd man out? Are there signs of the end of the trend? Probably.

You would expect the gap between asking and sales prices to widen toward the end of a cycle, as vendors' expectations drift out of line with emergent buyer caution. By that argument Rightmove's vast increases in asking prices might be masking a market which is already cooling.

It's also worth looking at initial asking prices relative to sales prices achieved. Hometrack says that for London, this ratio of asking-to-sales price has fallen for three months in a row.

That would be a sign, if not a certainty, that London's inflation is coming off the boil.

- Richard Dyson, Financial Mail on Sunday

>> All the latest news on house prices

>> Message board chat on house prices

>> Help for first-time buyers

>> How to post a comment on this blog

First time buyers taking 'very big risk'

I've just been talking to a London mortgage broker who tells me that most first time buyers are taking out interest-only mortgages.

In other words they are not repaying any part of the mortgage itself: their monthly mortgage payment simply covers the interest charged by the bank. And that's a big risk.

Jonathan Cornell, director at Hamptons International Mortgages, says: 'The vast majority of first time buyers are going interest-only.' There is no clear data specifically for London on this, so I'll take him at his word. In any case, what he says tallies with anecdotal information from other brokers.

Nationally, data does exist. According to the Council of Mortgage Lenders, around one in five - 22 per cent - of FTBs are going interest-only.

Cornell reckons most of these buyers intend to switch to repayment later on - but says in reality they probably won't. 'In a few years' time there will be children or some other pressure on income,' he says.

So there they will be, stuck in a small house or flat with a big mortgage that is getting no smaller, and no way of paying it off. As Cornell says, a £200,000 mortgage today will feel exactly the same as a £200,000 mortgage in ten years' time.

Surely property inflation will see them through? Not if it doesn't significantly outstrip ordinary inflation. If house prices go up at an average four or five per cent for the next decade or two; well, says Cornell, these interest-only bunch won't be doing much to build up their net wealth through property. And, of course, if they take out any future equity growth through re-mortgaging - as history has shown we are all inclined to do - then they could end up with no real returns from their asset whatever. They will simply have rented their home from the bank, for a while.

But surely these people can sell up eventually, and trade down?

Good idea. But then, as Cornell cheerfully asks, what will these people trade down TO? 'These first time buyers are Jo and Jane Average,' he says. 'They live in tiny homes on which they have bg mortgages. It's not as though they're in six-bedroom piles in west London.'

- Richard Dyson, Financial Mail on Sunday

>> Help for first-time buyers

>> Calculator: Interest only vs repayment

Kindly banks 'offer help' to people who can't afford homes

Look what good old Alliance & Leicester mortgage boss Stephen Leonard said today about first time buyers who can't afford a home:

'Lenders are playing their part to help the first time buyer’s cause. Alliance & Leicester lends money on an affordability basis which enables buyers to borrow money according to their individual financial circumstances and is not based on rigid income multiples. Since moving to this model last year, the number of first time buyers turning to Alliance & Leicester has increased.'

Cut the charity bull, Leonard. The only 'help' on offer is the fact that you'll lend some of these youngsters more money, right? What you're really saying is: 'Don't worry, we'll find ways of lending more while persuading our shareholders that it's safe to do so.'

What can this slackening of lending criteria - Leonard no doubt wouldn't see it as such - do but push house prices up further? At least, in the short term...... Thereafter, who knows.

It is in banks' interest to whip up hysteria about unaffordable housing. If banks can persuade everyone that this is a national crisis, then they will be justified in lending ever bigger, longer mortgages. And they'll do as Alliance & Leicester does and present this new, extended lending as some sort of act of charity.

Apart from the inflationary effect on house prices that this extra lending may have, there are probably other unattractive social side effects, too. The 'affordability' models can discriminate against certain types of buyers - such as those with kids or those not in graduate-type jobs perceived by lenders to attract rapidly increasing wages.

Far from helping, this kind of lending might just drive a wedge between yuppies and twinks* on the one hand who DO manage to climb aboard the housing ladder, and other young families who remain as far from home ownership as ever.

- Richard Dyson

*two incomes no kids

Housing unaffordable? What rubbish. Greedy banks will simply lend more

With all the news about house prices set to continue booming - earlier this week the National Housing Federation said prices would leap 50 per cent in five years - it is easy to overlook the role that banks play in stoking up housing inflation (see blog by Richard Browning, below).

Prices are rising mainly because of a shortage of supply - true. They also rise because more owners are buying with the power of two incomes. And they also rise, in a small part, due to our gradually rising wages.

But a big inflationary factor has to be the banks' willingness to lend ever greater multiples of income. Lenders are relaxing their typical maximums at an astonishing rate - and every single one of them is at it, in order not to lose business to the greedier bank next door.

The Council of Mortgages Lenders, which publishes consolidated industry figures, says that the average loan to a first-time buyer is just over three times their income.

That number doesn't tell half the story. Many lenders - banks, rather than building societies - are cheerfully offering four times joint salaries, and more. Of the high street giants Abbey, for instance, will lend a couple four times their joint income without quibble, even if their deposit is relatively small. Halifax probably would too, and Alliance & Leicester - maybe even Nationwide.

Some specialist lenders will happily roll out loans of six times income, even where borrowers have a record of arrears and defaults. And these banks, by the way, are not tentative minnows nibbling at the fringes of the mortgage market. They are big, big names.

US bank Morgan Stanley, for instance, is setting up a mortgage outfit over here and it has (naively, you might think) published a comprehensive online calculator showing what vast sums it is prepared to lend. (Click here - and then ignore all the warnings and proceed to use the site as if you were a mortgage intermediary.)

Where these jumbo loans are concerned, the banks usually require a larger deposit - surprise, surprise - so that if the market does go belly-up, it's the borrower not the bank that takes the hit....

The point is that banks are devising ever new, ingenious ways to lend buyers more money. By so doing they are stoking up the boom at a tremendous rate. Can't afford to buy a house? Well, say the banks, how about borrowing five or six times your income on an interest-only basis with a mortgage that has a term of 50 years? See if that doesn't get you on the housing ladder!

This strategy can go very wrong. It will cruelly exacerbate the effects of any future correction, heaven forbid.

And all this talk of people using their house as their pension? Nice joke. If it's mortgaged up to the chimney pots and the owner's hitting 70, a home won't make much of a pension. And you don't need to be an economist to work that one out.

- Richard Dyson

Standard Life - niggly aspects of share ownership

There's been some anxiety over whether Standard Life windfall shares can be transferred to another stock broking account once they are trading, without the loss of the extra bonus shares. These bonus shares are promised to policyholders at the rate of one free share for every 20 held continuously for 12 months.

Late last week Standard put out a statement about this which, for anyone interested, should clear things up.

You're allowed to move your entitlement to a nominee account - such as an online stock broking account - without their being an impact on the freeby shares.

But if you transfer the shares into someone else's name, the perk goes.

Also, importantly, you can't move the shares into an Isa or Sipp qualifying account without losing the entitlement, because doing so counts as a change of ownership.

Hope that helps anyone who's considering the issue.....

- Richard Dyson

Useful links

Standard Life - read our special round-up

Blog - Dad, sell your Standard Life shares

Almost one in 100 is a millionaire....

There are 448,000 Britons with investments worth one million US dollars or more - and that's excluding the value of their home (or, more likely, homes).

This is according to the latest annual report on the world's rich from investment bank Merrill Lynch and consultants Capgemini. The report makes fascinating, if nauseating, reading - check it out here (annoyingly, you need to register).

But it's the proportion of rich people in Britain that surprises me. The UK's population is 59 million, so Merrill's numbers mean that almost one in 100 of us is a millionaire. That seems like a hell of a lot.

These millionaires must be everywhere.........

- Richard Dyson, Financial Mail on Sunday

Useful links

CALCULATOR: How long to be a millionaire

SEARCH: Look for a business to buy

Standard Life 2000 vs 2006: why did the turnout grow?

Back in 2000, when Standard Life last polled members on whether they wanted their insurer to demutualise, the potential windfalls were far bigger than today. But members then did as the board said, and voted against the float.

This time round, of course, the board has urged members to vote FOR demutualisation - and they have again duly done as they are told, and overwhelmingly supported the float.

What interests me is the change in turnout. When there was MORE money at stake, the turnout in 2000 was lower - around 50 per cent of members. This time round, much to the delight of Standard boss Sandy Crombie, over 65 per cent of qualifying members voted. That's one of the biggest ever turnouts in a corporate ballot.

So why the increase? I've really no idea - but here are a few stabs:

1: Those who supported demutualisation last time round were annoyed at having lost their windfalls - so they made sure to vote in favour this time, and encouraged everyone else they knew to do so too

2: The evolution of online chatrooms and blogs in the past six years might have helped spread the word and bump up numbers

3: Most important of all, I reckon, is that this time round members were being encouraged to vote by the company through its official literature. It's quite amazing, given the circumstances, but it appears that Standard's policyholders still hold the company and its management in sufficient respect to listen and obey. Last time round, the turnout was lower because policyholders were getting mixed messages. On the one hand, the carpetbaggers were urging them to cash in their chips and vote for a float, while on the other the company's management was telling them to keep the status quo. The result was that policyholders were confused and so fewer voted. This time, however, the board was urging them both to vote and to vote for the float. Bingo.

The overall conclusion from this, as I see it, is rather depressing. It suggests that most policyholders (or small shareholders of a Plc, for that matter) are predisposed to take the board's word as gospel and vote as directed.

Any other thoughts on the matter?

- Richard Dyson, Financial Mail on Sunday

Useful links

Everything you need to know about Standard Life's stock market float -www.thisismoney.co.uk/standardlife

BLOG POST: How big is YOUR Standard Life windfall?

BLOG POST: Standard Life's new era of spin

(How to post a comment)

How big is YOUR Standard Life windfall?

Standard Life's 2.4 million with-profits policyholders are being mailed ahead of the proposed demutualisation and being told how many shares they stand to get if it goes ahead (see our coverage here ).

On page 86 of the 112-page document, if they get that far, policyholders can see the prospective share entitlements of Standard's directors.

Non-executive director Alison Mitchell has the most. If the flotation goes ahead she'll get 3,874 shares. With the shares estimated at 240-290p, this lot will be worth £10,266 at the mid-price of 265p.

Chief executive Sandy Crombie's policies are obviously worth less... He'll get 1,028 shares (£2,724 at 265p). Chairman Sir Brian Stewart gets even less still, a paltry 301 (£797).

Anyone out there been told that they're getting more than 3,874?

- Richard Dyson, Financial Mail on Sunday

Useful link

www.thisismoney.co.uk/standardlife

More sneaky Alliance & Leicester mortgage fees

Alliance & Leicester is at it again with sneaky mortgage fees. Mortgage rates have been crunched so low that most lenders are now clawing back costs through ramping up their front-end and back-end fees, but some simply defy belief.

My colleague Jo Thornhill, who also writes for Financial Mail, has recently become the proud owner of a flat in south east London. She applied for one of the best mortgage deals on the market, which was with Alliance & Leicester.

When the mortgage offer came through, like any decent financial journalist worth her salt, Jo checked it thoroughly, including what fees were being charged and for what. One £25 fee related to a charge A&L applies to customers who do not take out its buildings insurance.

The administration fee is charged to cover the administration cost for the lender to ensure insurance is in place. Fair enough, Jo thought, until she called A&L's insurance division to get a quote for cover. The thinking was if A&L could provide competitively priced insurance Jo might save herself a needless £25 charge.

However, she was shocked and annoyed to learn on speaking to a member of staff at A&L that the bank does not provide buildings cover for flats. After much wrangling the bank waived the fee on Jo's mortgage account saying it was a mistake. But surely A&L's computer systems should have a default function which means this fee never shows up on the purchase of flats? How many other people have bought a flat using an A&L mortgage and been unknowingly charged this fee? Let us know (or about other mortgage fee problems) by posting a comment.

- Richard Dyson, Financial Mail

Useful links

My gripe with Woolwich

My campaign against A&L's fees

TOOLS: Find a better mortgage lender

Royal Mail: PRESS 6 to deliver an electric shock to the chief executive's backside

I have just had to ring Royal Mail because that hopeless shambles of an outfit went and lost a guaranteed delivery item. Yup, that's right. They LOST a GUARANTEED item.

Apparently it happens 'all the time', according to the woman I eventually spoke to at Royal Mail's call centre, and I was simply naive and stupid to think that 'guaranteed' meant 'guaranteed'. Dumb me. I won't make that mistake again.

Before I got to speak to her I had to endure interminable options on Royal Mail's maddening push-button phone hell.

There were countless choices, as you can imagine, but not the ones I really wanted. Such as:

Press 5 never to have to hear the name of this organisation ever again

Press 6 to deliver a 10,000 megawatt electric shock to the chief executive's backside

Press 7 to arrange emigration to a country whose postal service actually functions

Press 8 to launch an atomic warhead at the company's HQ

Press 9........

Now that really WOULD be a push-button service that empowered customers, wouldn't it?

- Richard Dyson

Useless cheque paying-in machines

Is anyone out there desperate, like me, to take a sledgehammer to high street banks' latest fad - automated cheque paying in machines?

These slabs of high-tech junk are propping up walls in branches all over the country. They're supposed to accept cheques and print out a personalised receipt. Fantastic.

Except they don't work. The only time I ever saw one work was when it was demonstrated to me by the radiantly proud chief exective of Alliance & Leicester, Richard Pym. He'd just bought some of them.

The fact it worked for him on that one occasion I put down to a miracle.

All my subsequent my encouters have been disastrous. The machines swallow the cheques greedily enough. But then, while you stand waiting with mounting alarm listening to all the clicking and whirring, they seem to change their mind. Eventually the cheque pops out again, nibbled at the edges.

After a particularly annoying session in HSBC last week I went to the counter and complained. The woman said: 'Don't tell me about it, it's already broken four times today. You hate them, we hate them, none of them work.'

- Richard Dyson, Financial Mail on Sunday

Useful links

More stories on banking services

Find a better bank

HSBC a local bank? - Maybe, if you live in India

HSBC gets the prize for most ludicrous advertising claim: it's ‘local bank’ campaign.

Call me pedantic but I don’t think 'local’ is the word to use about a British bank which appears to be run entirely from call centres in India.

Here’s my tale about the world’s local bank. I accidentally left an HSBC payment card in a west London branch of HSBC. Soon after, realising my mistake, I logged onto HSBC’s website to get the phone number for the branch.

Of course the number’s not local - it’s an 0800 number, answered by one of those option-droning machines that make you want to explode with rage.

After endless button-stabbing I spoke to a human being. She wasn’t anywhere near western Europe, let alone west London. Somewhere in Asia.

I said I’d left my card in the Kensington branch. She wanted to help, but said she could only put me through to the Kensington branch if I was a customer there and had the right sort code.

That’s how her computer worked, she said.

I’m not a customer at the Kensington branch, so she couldn’t put me through.

Did she have a phone number for the branch? Any number at all? Like the number somebody might ring if they wanted to deliver ink cartridges or sandwiches? For heavens' sake, they must have phones in there, and those phones must have numbers!

Oh no. Like HSBC’s miserable customers, all this employee in India had was a bunch of useless phone numbers for other call centres. No doubt I could chat to someone in Aberdeenshire, if I wanted, or Northern Ireland. Lots of local assistance at hand.

In the end, as I was some distance from the Kensington branch, I just cancelled the card by dialling another 0800 number for another call centre.

God knows where that one was.

Of course HSBC knows its customers hate having this sort of hellish experience. But the bank also knows that it's so much cheaper not to let us customers talk to staff in the UK - and in the end they'd rather just make us angry.

- Richard Dyson

Useful links

READER SERVICE: Fed up with your bank? So change it now

REPORT: HSBC says sorry for axing branch

REPORT: 'HSBC has betrayed us all'

REPORT: HSBC breaches the rules again

OK, the post's rotten, so where does that leave direct banks?

Fellow blogger Charlotte agrees with me about Royal Mail's frightening habit of delivering some of our post to other wrong (and unknown) destinations - and says she'd rather do financial stuff online than entrust anything to the mail.

That's fine for making payments, but what happens when you want to deposit a cheque?

With some of the direct banks, like First Direct, you can use the parent's branches (in FD's case that's HSBC). But for other direct banks like Intelligent Finance, there's no branch access.

So cheques have to be chucked into the post box with a stamp and a prayer.

It's one reason why I never use my IF current account. I just can't bear the thought of posting cheques to Edinburgh.

Everyone knows that banks are making more use than ever of courier services to deliver debit and credit cards - they won't admit it, but surely one reason is because they, like the rest of us, are losing faith in the post...

- Richard Dyson

Postal horrors

Thanks to all blog readers who left their Royal Mail tales of woe (click on my archive, right, to read the thread) after I reported how much post comes through my door addressed elsewhere.

One reader, Frank, reckons everyone should complain just to get the free stamps that are apparently doled out to shut people up. Frank, is that such a clever idea? What happens if the postman gets told off and decides to take revenge on the complaining household? Huh?

These guys are delivering our passports, driving licences, birthday cards, the lot. I don't think I'd like to make enemies of them.

Anyhow I rang Royal Mail's press office to ask how many stamps are given away as compensation each year. No answer as yet... I'll stick it up here when it comes.

Meanwhile, there's some interesting stuff on the postal watchdog's site - see here.

Postwatch says 8.7 million letters are delivered to the wrong address every year. It says Royal Mail pays out £11m in compensation (much of which I guess is for these misdelivered items), so that's worth around 40 million first class stamps.

Postwatch also has complaints forms and a diary where you can log the postie's glitches - useful stuff if you're suffering persistent misdelivery.

Some angry folk have set up a site called Hell Mail, all decked out in Royal Mail livery: take a look here. There's an interesting tale about criminals masquerading as postmen in order to get their hands on people's post or other information - and the site mentions the fact that Royal Mail uniforms are available on eBay.

Sure enough, see here, there's a couple of pairs of trousers (around £4) caps, ties - yes, it's out there.... There was a fleece too when I looked yesterday, but someone seems to have bought it.

Damn - I would have looked so good in that.

- Richard Dyson

Is it mad to trust the post?

Does anyone out there get other people's mail? Each week I get several items marked for other people at other addresses. Usually nearby. Mostly I deliver it on myself by hand, if it's very near; but sometimes I just shove it in the post box and give it another shot at finding the right home....

If I'm getting someone else's mail, someone else is getting mine, surely....

Not very confidence-inspiring, is it? Makes me worried, every time I send off a cheque.

- Richard Dyson

Mortgage statements are coming...

It's the time of year for mortgage statements to hit the doormat. Don't ignore them. The statement reminds your of the rate you're paying (if you don't know), how long you've got left on any special deal, and also the amount of capital and interest you've paid in the past year.

Tucked in with the statement will be a sheet of sundry charges, well worth examining. This is where the lender lists a couple of dozen charges for anything from issuing a copy statement (say £25) to closing the mortgage (anything up to £295). Read about the increases in these types of costs here.

Woolwich is the latest and worst of the offenders. Last month it shoved its mortgage closure fee up from £195 to £275.

We don't reckon anyone who's remortgaged or about to remortgage away from Woolwich should pay this extra fee, as the increase is nothing more than the lender's sneaky attempt to bolster profits AFTER the borrower has signed up. So if you're ditching Woolwich for another lender, use our letter of complaint - see here.

And, please, do let us know how you get on....

Richard Dyson

Useful links...

How to post a comment

Find a better mortgage

Guides to mortgages

Woolwich wobbles over unfair fee

Talking of re-mortgaging (see Charlotte Beugge, below), the weasley Woolwich has secretly decided to waive £80 of its extortionate new £275 fee for borrowers who switch away to other lenders - provided they complain this month.

Woolwich has briefed mortgage brokers and solicitors that if borrowers complain about its 'account closure fee' before the year-end, they will be charged £195, instead of £275.

The new, increased (and unjustifiable and appallingly unfair) £275 charge was supposed to apply from the beginning of this month - not that Woolwich explicitly told any of its 800,000 borrowers about it. It applies to ALL borrowers who repay their Woolwich mortgage to go elsewhere, and comes on top of any applicable early redemption penalties.

So complain, Woolwich borrowers, complain!

As I've written before - see my other blogs on the subject - I don't reckon any Woolwich borrower should pay this fee regardless of when they decide to object. It doesn't cost £275 to close a mortgage, whatever the weasels say.

- Richard Dyson

Woolly logic at Woolwich...

Got a mortgage with Woolwich? Then, from December, if you close your account and move to another lender you'll have to pay a fee of £275 - up from £195. (See my earlier blog and various links there).

Woolwich hasn't yet bothered to explain this daylight robbery, or mention how many tens of millions of extra £s it will net as a result, but in a letter sent to mortgage brokers in the last couple of days it did say something of interest. It wrote:

"The Final Redemption Charge is charged in order to recover the costs
incurred in providing a competitively  priced loan product, which is
subsequently redeemed before its maturity."

Huh? I thought that that's what early redemption penalties were supposed to be for... Surely a charge that is supposed to cover administrative costs of closing a mortgage, can't be used as a penalty AS WELL?

What Weasley is saying is that it is using the fee to claw back the cost of attracting the business in the first place. If so, one has to wonder, how could that cost have gone up AFTER THE EVENT? Surely a bank, even one staffed by weasels, must know how much it cost to attract a customer its already got...  Many of Woolwich's borrowers took out their mortgage years, even decades ago.

How could the cost of getting someone to sign up in, say, 1988, suddenly go up by 41 per cent in 2005?

So here's a little logical puzzle for the weasels who work at Woolwich:

Q: If a weasel paid £x to snare a mortgage borrower in 19yz, how come £x suddenly got bigger in December 2005?

Put your furry thinking caps on, weasels, and post your answers using the comment facility below.*

Meanwhile, calling ALL WOOLWICH BORROWERS, please bookmark this page - more
info and more instructions on how and when to complain will follow shortly.

[*CLUE: the only truthful answer will include the words 'greed', 'more', 'profits', 'contempt', and 'customers' - in that order.]

- Richard Dyson

A warning to Woolwich mortgage customers

Woolwich has upped the charge it levies on borrowers who close their mortgages by £80 to £275. Overnight. Wham.

Woolwich borrowers who close their mortgage, because, say, like any reasonable person, they want to get a cheaper one elsewhere, will get hit with the increased fee from December.
Why the hike? Weasley Woolwich will talk about increased costs etc. It will try to pretend that the cost of closing a mortgage account (what, a few phone calls and a couple of letters?) is really £275, even though other lenders seem to manage to do it for less than a third of that.
The truth, of course, is that at a stroke the extra £80 will make lots of dosh for Weasley and its big ugly sister organisation, Barclays Bank.
It'll also give Weasley an unfair advantage over its competitors: borrowers pick mortgages on the basis of rate, and Weasley's rates will look good because it is snitching money from spurious add-ons such as this so-called 'Final Repayment Charge'.

BUT THE GOOD NEWS IS...
Here's the best bit, and I'm anxious for ALL Woolwich borrowers to read this and tell their friends: I don't think you have to pay this extra £80. It's voluntary. Here's why: When Weasley's rival, Alliance & Leicester, introduced a similar hike in its mortgage closure fee from £195 to £295 in August 2004, me and my colleagues at the Mail on Sunday thought it was a wretchedly dishonest way to treat customers. It was perfectly obvious that the increase had nothing to do with the costs associated: it was simply a ruse to make customers pay more after they'd signed up. (Something which snivelling A&L bosses could never bring themselves to admit, though we certainly tried! Read about it here, and here, and here.)

We provided a sample letter to help borrowers complain - and they did. We've no idea how many. But hundreds. And A&L has since confessed that it referred NONE, NOT ONE, of these complaints to the Ombudsman. In other words, ALL complainants got at least the £100 increase knocked off.
Now I reckon weasley Woolwich will have to do likewise.
So if you're a Woolwich customer, keep a close eye on this blog thread: we'll publish clearer instructions on how and when to complain in due course.

Remember, the this new charge applies to ALL Woolwich borrowers (that's about 800,000 homeowners) when they switch away to another lender. As recently as July 2003, the cost of closing a Woolwich mortgage was under £100 - so this new charge is significantly more than most borrowers expected to pay when they signed up. Don't put up with it! And please, please, spread the word.

- Richard Dyson

Heathrow Express

I've been away two weeks, hence blogging absence.

But on my return to the UK I discovered something which may be of use to Heathrow travellers: Heathrow Express, the shuttle link between the airport and Paddington Station in West London, is now sharing its airport platforms with commuter trains that also go to Paddington. And they're a lot cheaper.

A single journey to town on Heathrow Express costs £14 if you buy your ticket at a machine. The journey takes 15 minutes non-stop. The commuter trains which have apparently been running on the same platforms through Heathrow since late summer take around five minutes longer, because they stop several times. But the journey costs £9.50.

Given that air tickets are available for less than the cost of the 15-mile journey on the Express, it's a saving worth making. Also, platform information at the airport should mke it clear that there are cheaper alternatives to the Express.

Any thoughts? Post your comments below...

- Richard Dyson

Pay off the mortgage - or do something else with the cash?

Blog reader M Pawson asked about the pros and cons of paying off paying off a mortgage early – see ‘Reasons for repossessions’, below.

M Pawson is in the enviable position of being able to clear his mortgage, but doesn’t know whether it makes sense to.

We’re always getting questions about this – increasingly from borrowers who are thinking of interest-only mortgages, where they don’t make any repayments at all, but try to do something better with the cash elsewhere.

It’s all about expectations of returns. Oh yes - and risk....

Take a £200,000 mortgage and for simplicity’s sake say the rate, for the duration of the 25 year term, is 4.5 per cent.

Borrower Jill goes the repayment route and her bills are £1,112 per month. The total cost of Jill’s credit, on a repayment basis over 25 years, works out at £133,499. So to own the home outright, including the capital repayment, Jill hands over £333,499.

Borrower Simon goes for interest only. Simon’s monthly bills, just serving the 4.5 per cent interest, will be £750. If Simon pays that every month for 25 years he’ll have parted with a total £225,000 – and yet he still won’t have paid back a jot of the capital borrowed.

But Simon is paying £362 less per month than Jill. Say he shoves that extra cash into a tax-efficient savings scheme, such as a unit or investment trust held inside an Isa (so no capital gains tax).

In theory – excluding tax and costs etc – if his £362 per month compounds up at the same rate as the mortgage, Simon will roughly end up in the same position as Jill in 25 years’ time. He’ll have £200,000 to clear the debt. Try This is Money's calculators.

But if he is investing in equities, he could reasonably hope to get more than the rate he was paying on his mortgage, over time. Say his savings compound up at a modest five per cent per year: then, his £362 per month would grow to a total £217,693.

That would pay off his house entirely and leave him an extra £17,000-odd. If the equities compounded up at an average six per cent, he’d get an extra £53,000, and at seven per cent, he’d get an extra £94,000…

All that sounds ominously like the sales patter used