In recent weeks there’s been media criticism of certain banks and societies for reducing their savings rates by more than the Bank of England reduction.If this is a surprise to anybody, it’s tempting to ask what planet they’ve been on for the past 20 years, which is certainly the minimum amount of time these bastions of our society have been behaving in this way. So this news is hardly a revelation, more an affirmation of the norm. Savings and loan providers have traditionally managed their profit margins by distributing the savings and borrowing rates in an uneven way. By shaving an extra few basis points from the higher yielding savings accounts or from where the largest balances are held, they reduce their costs. And by compensating for this so-called unfairness by being slightly more generous to the less costly products, or to accounts holding smaller balances, their spin doctors are able to quote a figure relating to reductions across their range, which is invariably close to the base rate movement. It’s a kind of smoke and mirrors thing and is not a new trick. It’s been much the same with mortgages. A few years back, the base rate movement was a significant contributor to corporate balance sheets. By delaying passing on to customers the benefit of any interest rate reduction, known as lagging, it was possible to rack up an extra few million pounds in interest charges. And, conversely, by acting quickly to pass on the additional cost when rates bounced back up again, known as leading, another few million rolled in. Regulation, and especially Treating Customers Fairly, has significantly reduced the scope for this sort of practice so lenders are reverting to other tried and tested strategies. Administration tariffs are going up and so are agreement, completion and arrangement fees. Call them what you will, lenders are increasingly raising the upfront cost of securing their latest deal. Where a 299 fee was once the norm we now see moves towards 600. And securing Abbey’s latest two-year tracker will cost you just a quid short of 700. The 4.24% rate might be good but 699 is a sizeable chunk of money. And the long-term lock-in seems to be making a comeback as well. I was pleased a few years ago when lenders drifted away from tying borrowers into lengthy periods on standard variable rate after the expiry of a special deal. But lock-in terms are lengthening again. Presumably this trend will continue until one or two cases are tested through the Ombudsman and found to represent unfair contracts. These money-making practices strike me as somewhat perverse when aligned with the honeyed words some of the offending providers utter when portraying themselves in their advertising. They seek to reassure their existing and prospective customers that they’ll receive a little something more or have a mortgage built round them or get put first. So isn’t it a shame that in an industry founded on honesty, there can’t be more honesty of presentation than we see today? But it’s sorting though this plethora of deceptive nonsense that increasingly provides the intermediary industry with its raison d’etre – particularly IFAs. Today, although consumers are quick to identify banking hype they are still unsure as to whom to turn to for guidance and financial advice that is truly unbiased. The financial media is sometimes interested in sensationalism while banks and building societies are interested in profits and surpluses, leaving consumers confused in the middle. This is why financial advisers are pivotal. Advisers may not give you a free lunch but at least they won’t make you pay for someone else’s.peter mounty
Brokers may moan about the FSA’s mystery shopping trips but they would do better to learn from the results and sharpen up their act when it comes to disclosure, says Bill Warren
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A report from the Centre for the Modern Family out last week presents some interesting — and perhaps rather worrying — findings.
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