Money Box - Saturday 24 February 2001

THIS TRANSCRIPT WAS TYPED FROM A RECORDING AND NOT COPIED FROM AN ORIGINAL SCRIPT. BECAUSE OF THE RISK OF MISHEARING AND THE DIFFICULTY IN SOME CASES OF IDENTIFYING INDIVIDUAL SPEAKERS THE BBC CANNOT VOUCH FOR ITS COMPLETE ACCURACY.

Tape Transcript by JANE TEMPLE

MONEY BOX

For a short visual taste of the team in action at the Homebuyer's show at Olympia, click here.

Presenter: Paul Lewis

TRANSMISSION 24th FEB 2001 1500-1530 RADIO 4

Latest News on House Prices

Remortgaging

Homes for Key Workers

New Chairman of Equitable Life

Buy to Let

Internet Services

ANNOUNCER : It's four minutes past twelve and now here's Paul Lewis with MONEY BOX which this week is live from Olympia in London.

LEWIS Hello and welcome to the Home Buyer's Show. We're in the grand hall of the exhibition centre here at Olympia - a soaring structure like a great Victorian railway station, but on the floor it's all high tech displays and events. Chris Acourt is roving round looking at what's on offer - Chris, where are you now?

ACOURT Paul, I'm slap bang in the middle of the show among the stands of the country's biggest estate agents, mortgage lenders and home builders and people are arriving from all over but one of the joining factors I'm finding is that many are saying they're confused about the property market this year. There are some really conflicting signals on whether the price of homes is rising fast or is steady. For instance the country's largest building society Nationwide has said house prices are going up by over 11% a year, but the biggest mortgage lender, Halifax, says prices are rising by less than 1%. It's quite a puzzle for many and here's a further taste of what people are saying:

WOMAN I'm just deciding to think about buying so it's just a first look. I don't know if it's the right time to buy or anything. I'm surprised how - how much it costs just to buy a one bedroom flat.

MAN Well when we're looking outside London things become ridiculously cheap and we look inside London and you just don't know how to go about buying anything.

WOMAN It's all very interesting at the moment. It's up and down all the time and what you think you can't do one week you find you can another. But we're still looking.

LEWIS Thanks Chris and we'll be talking more about house prices later. Also in the week when the London stock market hit its lowest level for 16 months we'll be asking if investing in property brings better returns. We'll be looking at the mortgage wars that broke out this week, and we'll also be taking a few minutes away from the show to hear the first broadcast interview with Vanni Treves, the new chairman of Equitable Life who starts next week. Well as we've been hearing you can't move far here without someone talking to you about whether the price of houses is going through the roof or is as flat as a first floor appartment. With me is Hugh Dunsmore-Hardy of the National Association of Estate Agents. Hugh, conflicting information as Chris said from Halifax and Nationwide about prices. What's the truth?

HUGH Well I think the trouble is with of course when you look at the - the figures put out by the major lenders is that they're taking national average figures based on you know their own statistical basis. We prefer what we get from the front line which is our members effectively. I mean what we're seeing I think is a mixed picture across the country. Certainly the market started off very briskly in January, but in some areas that briskness has not developed into shall we say a particularly high level of business. As far as prices are concerned I mean we're getting reports that prices are probably averaging around 6 - 7% year on year, and that's where we're settling for at the moment, which is very much in line with the forecasts that we made in our economic report towards - in the last quarter of - of 2000.

LEWIS And still then well above inflation?

HUGH Yes still well above inflation. I mean obviously it's a national picture and you've gotta bear in mind that in some areas you're gonna find a much flatter - a much flatter situation and of course the market is driven to some extent - the higher figures are driven from London and the Home Counties.

LEWIS And where are the bargains to be found?

HUGH Well you've gotta search for bargains these days I'm afraid - if you find a bargain there's usually 50 million other people want to buy the same bargain so that usually forces the prices up anyway, so difficult to find bargains I think in that sense of the word.

LEWIS And if people do find the home they want but it is a bit too dear to what extent can they ease it down - what sort of negotiations can people do now with a fairly flat market?

HUGH There is no easy answer to that and I think the fact of the matter is that don't try and be too clever because if you're too clever and sit back and wait you'll probably find somebody else has come and snapped it up because we still have a basic situation where the supply of property is not meeting demand, and that's true of most areas and certainly you'll find even in areas that maybe quite flat on price certain categories of properties are hard to find.

LEWIS Hugh Dunsmore-Hardy thanks from the National Association of Estate Agents. Well mortgage wars broke out this week as first Nationwide and then Halifax slashed the interest rates charged to customers. Half a million Nationwide borrowers will see a cut of 0.6% in their mortgage rate as the society stops special deals and introductory rates and gives low interest to all their customers who aren't already on a special deal. The next day Halifax responded, slashing three quarters of a percent off its standard interest rate. At 6.75 it's just one percent above the base rate set by the Bank of England, and that's where Halifax says it will stay. But the wars weren't confined to promoting their own products. The bosses of the two companies were keen to come on Money Box and attack each other. Brian Davis, Nationwide's chief executive.

DAVIS I regret to say that the Halifax are treating their existing customers with a degree of disdain. The best deals they have on offer at not available to their existing borrowers and in fact of course they haven't transferred their existing borrowers - they have to go through the process of applying so they're really not treating them properly at all - they do not have a very good offer at the moment in place for their existing customers. We are moving half a million of our borrowers on to our new rate automatically. They could have done the same. They have chosen not to do it - .it is not the right way to treat your existing customers.

LEWIS And John Lee, executive director at Halifax was quick to respond:

DAVIS I'm surprised at the line that Brian has taken by - by that. Let me be absolutely clear about the fact that we do want to see all our customers who are on the SVR rate moving to this new rate. We can't simply throw a switch on it Paul because at the same time as making the reduction we are introducing daily interest which is by far the fairest way for most customers of calculating interest. Now that is a change to the -the mortgage deed. We can't do that without peoples' agreement and therefore we need to actually do the two things together with them and that means we've gotta talk to them.

LEWIS And that was Halifax replying. Now there's no shortage of mortgage brokers at Olympia today and with me is Nick Carr from Illingworth Associates. Nick bit of jargon first - standard variable rate - I suppose what Alistair Campbell might call a bog standard mortgage - is that what most people are still playing?

CARR I think so yeah and what we've found is with the statistics we're looking into that 60% of all borrowers in the UK are actually on the standard variable rate which is a staggering amount when you consider all the many offers that are available to people nowadays.

LEWIS So people can change - what - what can they hope to save by changing?

CARR Well they can hope to save a lot of money on a monthly basis.

LEWIS But how much - can you put a figure on it?

CARR Well I mean on average on £140,000 which is about the average house price in London and the South East - somebody with that sort of mortgage looking to reduce their monthly outgoing say over a 25 year term could look to save about £200 a month from switching from the standard variable rate to something on a cheaper basis.

LEWIS Now but with all the big banks - I mean Halifax and Nationwide making the start but with other big banks presumably going to follow, if they're bringing their rates down doesn't this mean it's less worthwhile changing and shopping around?

CARR I think eventually it will do. I mean obviously it's gonna take a while for it to get to that period where it is less worthwhile, but I think we're seeing a switch now to where the standard variable rates are coming down so therefore the discounts won't be as large as they were in the first place so therefore the margin to change won't be as big as they were. You'd have to look a lot closer at the costs. I think we might see a period now where lenders are offering fee free packages, where you can move from one lender to another. They'll pay all conveyancing fees and associated costs, trying to obviously secure the business of the borrower.

LEWIS So there's still this competition for - for new mortgages or for remortgages and that's really what's driving prices down. What are the drawbacks of doing it - what are the things people should look out for?

CARR Obviously redemption penalties is probably the biggest drawback of - of actually moving from one lender to another.

LEWIS So that's if you - if you stop your existing mortgage they charge you a fee for leaving them basically?

CARR They do indeed yeah - I mean most of the very low fixed or capped or discounted products over whatever period tend to have a - a redemption penalty at the end of the period where obviously you're then locked into the variable rate. I think it's important when considering your product exactly how long that you are gonna be locked on the standard variable rate cos obviously it doesn't offer you any great flexibility and it could well cost a lot of money to come out of it.

LEWIS Right, so make sure that the penalties don't last longer than the special deal at least.

CARR Absolutely

LEWIS Nick Carr from Illingworth Associates thanks. Well of course re-mortgaging is all very well if you already have a home, but what about the young people who simply can't afford to think of buying their first place. The problem can be particularly acute for people like nurses, teachers, police officers, who have to work in areas with high property prices but don't earn enough to buy even a small flat. Well this Spring a lifeline is being thrown to some of them in England at any rate - Money Box's Penny Haslam has been on the road to find out more:

HASLAM Here in Oxfordshire house prices are among the highest in the country. Typically a small one bedroom flat can cost from around £90,000, which makes property shopping extremely difficult for people like PC Paul Genge and staff nurse Fiona Hill who I met outside one of the many local estate agencies in Oxford. If we're looking in this window here and there's some properties here for £90,000 and some for 135 - what can you can afford out of this window?

GENGE Well unfortunately I can't afford any of them with the money the way it is and how much I'm paid - none of these are within my price range.

HILL I just can't afford to buy anywhere to live so I have to carry on renting until my position will change or - or to see what I can when I can afford to - to take on a mortgage and buy a property.

HASLAM Paul and Fiona's difficulties also affect the communities in which they work. Because Paul can't afford to buy he leaves Oxford next week to go and work for the Greater Manchester Police, where local housing is much cheaper. Thames Valley police will have lost another officer. Staff nurse Fiona Hill says she and her colleagues face similar problems, caused by expensive property.

HILL They stay a while, rent a bit and then move elsewhere. I mean ultimately they get the same wages but get more for their money if they live in an area that's cheaper to live - and cheaper to buy property, cheaper to do everything, so I guess people just don't stay.

HASLAM What might help ease this situation is the government's new starter home initiative - 250 million pounds has been set aside by the Department of the Environment Transport in the Regions to help 10,000 key workers in England buy homes over the next 3 years. That's around £25,000 per person to be made available through local schemes. In Oxford for example the renowned John Radcliffe hospital wants to help its staff own homes by buying a share of the property with them, but in order to do this it has to successfully bid for a share of the DETR money. It will then use the cash to top up mortgages and become shared owners. The hospital's Ian Humphries says the hope is that its nurses can at last consider buying homes of their own:

HUMPRHIES Most mortgages now stretch annual income by 3 to 3.5 times - hence for a member of staff say on £19,000 a year that £90,000 property suddenly becomes affordable.

HASLAM And several big mortgage lenders are already willing to sort out a mortgage for a shared ownership scheme but the problem is that there may not be enough money to go around. Money Box has learned that when the deadline for bids closed this week over 160 organisations had requested funds - far more than the government has budgeted for. At this stage only around 2,000 in England will be helped and that's a worry for Karen Jennings at the public sector worker's union UNISON:

JENNINGS it is a drop in the ocean in terms of what's required. We've got to see it as a long term investment in the staff rather than just something that's going to take place over the next 3 years.

HASLAM But it's hoped the first people to benefit from the starter home initiative will do so from the beginning of June.

LEWIS Penny Haslam. Equitable Life begins a new life on Thursday when most of the company will pass to Halifax Bank and a new chairman takes over. Vanni Treves is currently chairman of Channel 4 and in his first broadcast interview since his appointment, Mr. Treves told Money Box he'd work seven days a week if necessary to find a solution to Equitable Life's problems. They began of course after the House of Lords gave some members rights to high guaranteed pension payments. I asked Mr. Treves his first task when he begins work next week:

TREVES I want them to feel that the society's safe and that their funds are safe, and I think that the best way of doing that in the early days is to restore trust and open communication between the society and our policy holders - that's the first thing.

LEWIS You say - you say restore it - are you saying that you think that's been lost by the present management?

TREVES They told me it has been yes.

LEWIS So how will you go about restoring that because members are very concerned aren't they - they're concerned that their money it's not done as well as it might and you have this unlimited liability to the people with the guaranteed annuities?

TREVES We're beginning work on the putting together of a compromise between the GAR holders.

LEWIS That's the guaranteed annuity .

TREVES The guaranteed annuity holders and the non-guaranteed annuity holders, putting forward a compromise which will be put to them for a vote sometime later this year.

LEWIS And is that different from what we've heard already that the guaranteed annuity holders would get an uplift of 20% in their investment fund in exchange for giving up the rights which the House of Lords gave them?

TREVES Well the 20%is a percentage that's been mentioned and is not set in stone. And the chances are that different GAR holders at different ages will receive different amounts.

LEWIS And if all those things happen what's to stop some bolshi member saying blow that - I want my House of Lords' rights?

TREVES The court approval if obtained will eventually obtained - will bind all members.

LEWIS So it will overturn the House of Lords' decision?

TREVES It won't overturn the House of Lords' decision but it will replace it with an alternative and agreed compromise.

LEWIS The board is resigning. The president has gone - you've replaced him calling yourself chairman. What about the large number of senior managers and directors - the executive directors who are still there indeed the current chief executive was -was deeply involved in the period when the mistakes were made. Are they going to stay?

TREVES Well many of the senior people in fact many of the people are going over to the Halifax. Those who wish to stay with us, who may stay with us will be reviewed on their merits. Everybody who stays will be considered on his or her merits and I and my colleagues will decide very promptly who should do and on what basis.

LEWIS So you're saying the existing executives will be in effect having to apply for their own jobs?

TREVES Absolutely

LEWIS There are a lot of people with money in Equitable - a million people who don't have guarantees - why should they keep their money there because ultimately they are going to have to pay something to the people with guarantees aren't they? - they're going to have to lose that element of their investment?

TREVES They have done very well to date. The investment record of the society over time has been very creditable. If they leave now as you know there is a penalty - let's call it that of 10%. I believe that if they stay they can look forward to a very stable and encouraging investment performance in a society in which they can have confidence.

LEWIS If you fail, is there a danger that Equitable Life will fall into insolvency?

TREVES No. Technically it's solvent because we pass all the regulatory hurdles and the FSA will confirm to anybody anytime that we are solvent in terms of the law and of the rules.

LEWIS So even if you fail, even if no agreement is reached with the guaranteed annuity holders Equitable Life will not fail?

TREVES Equitable Life will not fail. Equitable Life is and will remain solvent but if there is a compromise I believe that policy holders will do better.

LEWIS Vanni Treves who starts work as chairman of Equitable Life on Thursday and promised action within days of that and you can hear the whole 15 minute interview on our website later today. Now if people with money in Equitable are worried about the future growth of their investments it was an even more depressing picture for anyone with their money invested directly in shares - the London stock market hit a 16 month low this week and with the FTSE index of shares in our biggest 100 companies now below 6,000 - should we be finding another home for our savings? Well Chris Acourt has been out at the property buyers' show looking for one - Chris have you found one?

ACOURT Not yet Paul - in fact I'm in front of one of a number of exhibitors here offering information on buy to let - buying a second home and letting it out is an attractive prospect to people who can afford to do so - some investors are finding that their income from shares and bonds is decreasing as stock markets are slowing down and many of these investors are looking more anxiously at how they can be sure of the income they'd hoped for in retirement for example and taking a steady income from rent maybe the answer. But there's a lot to consider - for example some mortgage lenders are only prepared to let you borrow 75% of the value of the home you're looking to buy. It has given a pretty good return though in the past - 8 - 10% is what many people have come to expect from buy to let. But of course with the property market as it is this year and the low inflation environment that we're now in that's perhaps a little more questionable. Paul:

LEWIS Thanks for that Chris. Well with is Andrew Reeves or Mr. Buy to Let as some call him. Andrew, did you really start all this?

REEVES Well I launched the scheme on behalf of ARLA - the Association of Residential Letting Agents back in 96 but we had been successfully investing for clients for some 7 years before that, so we did know how it worked and we did know a lot of the complications that would have to be overcome.

LEWIS It used to be very difficult didn't it because a mortgage lender wouldn't lend you money if you weren't going to live in the house yourself?

REEVES That's correct. I think the main single achievement of the scheme has been to bring interest rates down akin to the home loan rate rather than having to pay a commercial mortgage rate.

LEWIS So what sort of interest rates can you get if you want to buy to let - as you say is it comparable to what you can buy your own home with?

REEVES Yes they are - at the moment there are some very keen rates on offer - discounted rates for example of 3..75% for one year, 5.99% for 3 years and 6.35 for 5 years, so the investor can set his financial costs at the outset and know that he's not going to be caught out by a rise in rates in the short term.

LEWIS And who looks after the property - does the investor as you call him or the landlord I suppose we might call him or landlady - do they look after it or do they employ an agent to do all the work?

REEVES Obviously they have the choice - it is their own property and this is part of the fun as it were of buying one's own investment,.

LEWIS Or worry

REEVES Or the worry, but there are plenty of competent agents - many of whom are members of ARLA.

LEWIS That's the Association of Residential Letting Agents?

REEVES That is correct yes - and scattered across the country and they can offer most importantly advice before the investor plunges in and buys a property, but can also find a tenant and look after the formalities, collect the rent and to manage the property.

LEWIS Now I'm sure one of the things that attracts people is that they hope anyway to make a capital gain with the way property prices are rising, but of course they might - or they will face capital gains tax on that if ever they sell, so that's a consideration isn't it?

REEVES It is yes. It isn't quite such a problem because there is tapering relief available now over a 4 year period, so the longer you hold the asset the less capital gains tax you pay.

LEWIS But nevertheless the income from rent - at least the profit from it presumably that is taxed as income?

REEVES Well most people are taking a buy to let mortgage of course and all the interest that is paid on such a mortgage is allowable against the rental income so if it's set up correctly and we wouldn't advocate incidentally more than about 70% borrowings, so the investor does have to have some capital of his own - then if it's set up correctly they shouldn't need to pay very much income tax at all because it will balance itself on the revenue front and the main reason for being in the market is for the capital growth.

LEWIS But there are some risks aren't there - there must be?

REEVES Oh yes, yes, there's definitely risks. First of all there's the risk of the property perhaps not being let promptly each time it becomes available so again take advice from your local letting agent on the - on the market. Secondly of course we've known in the past that interest rates can go up as well as down. And of course rents don't always follow the rate of inflation - they can level of for sometime, but the long term trend tends to be in line with inflation.

LEWIS But as you say exciting as well. Andrew Reeves thanks very much for talking to us. Now you can't move far at the Home Buyer's show without seeing companies that want you to find, examine, even buy your new home over the Internet, though everyone admits the Internet is in its very early days for property deals - you can do more and more. Earlier I stopped at the stand of Forsaletolet.com where James Cronk took me on a virtual tour of a property in London.

CRONK We're now in the room - this space in the middle of the room - we're moving around the room.

LEWIS You've just dragged the mouse and as if you're turning around - you're looking up at the ceiling - you're.

CRONK Exactly you can see all the cornice - the ceiling rose - low voltage lighting.

LEWIS Yeah - and you can go to the bathroom?

CRONK And the bathroom has quite a nice little feature in a high level WC which you wouldn't usually see .

LEWIS A high level WC?

CRONK Oh yeah

LEWIS Oh you mean one of those old fashioned flusher things that's up at the ceiling level? - so that's a positive feature now is it?

CRONK It is yeah very trendy apparently.

LEWIS All that technology to see where the toilet system is in your new home. Well with me is David Emery who's author of the Good Web Guide to Money - second edition out in the next few days. David, what can you do over the Internet now?

EMERY Well the first thing you can do is search for properties nationally, locally or internationally and filter out properties by number of criteria, not just location and price but property features as well - interior features like number of bedrooms, bathrooms, receptions, balconies, conservatories, garages, off street parking, swimming pool, gardens and even the paddock.

LEWIS So you can find your ideal home in your ideal location and hopefully at the ideal price. But at some point you're gonna have to go and see it aren't you - nobody's going to buy a house from the Internet?

EMERY No this is just the introductory process - this is the same process as you go through if you go out in the High Street and - and visit an estate agents - the process is not fundamentally different. This is information - this is introduction.

LEWIS But what is the choice? I mean is there really that much property actually on the Internet compared with driving to the place you want to live and then looking at all the estate agents?

EMERY Well yes there is quite a lot of - or if you believe what the website's actually claim for themselves, if you look at independent agency portal like asserterhomes or 0800 for homes - you're looking at about something over 100,000 properties theoretically - obviously not all of these are recent listings, but it's a good choice and it can extend nationally and frequently does extend nationally and internationally.

LEWIS Well Hugh Dunsmore-Hardy's still with us from the National Association of Estate Agents - is the Internet going to put your members out of business?

HUGH Not at all no, because at the end of the day it is only information and information is not knowledge and when you're involved in the house buying and selling process you need someone to hold your hand whether it's a seller selling a property or as a buyer buying. I think the other thing also is that where the market is fast moving you've gotta bear in mind that some properties don't even get on to the webs because they are - they are sold very quickly, so I think at the moment we're seeing a transitional period where the conventional method of searching for a property is running alongside the Internet and I think that will continue for a while.

LEWIS And David Emery are we going to see the time when people do the whole lot from looking at the property, choosing it , buying it and finally getting their mortgage over the Internet?

EMERY Well I think that's a little way off. I think there's a widespread myth that the net will dispense with intermediaries like independent financial advisors and estate agents but I don't think this is true. I still think that the majority of home sellers will want to employ a professional to help them market their homes, introduce buyers to sellers and close the sale.

LEWIS David Emery thanks and earlier Hugh Dunsmore-Hardy, and that's all we have time for today from the Home Buyer's Show. If you'd like more information about the items on today's programme you can call the BBC Action line - 0800 044 044 Calls are free: 0800 044 044 Of course you can look at our website: www.bbc.co.uk/moneybox. That's be updated shortly. You can keep up with personal finance stories throughout the week with Working Lunch - BBC-2 at 12.30 and if you've still got questions about housing I'll be back on Monday with our phone-in MONEY BOX LIVE on housing. You can e-mail questions now on [e-mail]. I'm back in the studio with MONEY BOX same time next week. Today the reporters were Chris Acourt and Penny Haslam. The producer was Paul O'Keeffe and I'm Paul Lewis.

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