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Jan02_July02 Monday, 11 March, 2002, 10:55 GMT
Money Box - 9 March 2002


Presenter: Paul Lewis

TRANSMISSION 9th MAR 2002 1200 - 1230 RADIO 4

ANNOUNCER : Now it's four minutes past twelve and time for MONEY BOX with Paul Lewis.

LEWIS: Hello. In today's programme, Halifax fights for its reputation as the press and the ombudsman launch a fierce attack. Is becoming a landlord as safe as houses? How the state second pension will be the first extra pension for hundreds of thousands of carers.

EMILY: If I'm getting a decent pension at least the government acknowledge, appreciate, what I have done in the past.

LEWIS: National savings say dip your toe in the stock market, sort of, and Barclay Card listens to its customers at last. Halifax, the high street bank is fighting for its reputation this weekend after an unprecedented onslaught in the press and an accusation by the financial ombudsman of misleading its customers. On Monday Halifax tried to settle a long running dispute with customers over its two tier mortgage rate by agreeing to pay 7 million pounds in compensation to 30,000 customers. But in its statement it also said customers who had not complained already, perhaps as many as 400,000 now had no entitlement to compensation and implied they couldn't seek help from the ombudsman and Halifax said this had been confirmed by the ombudsman.

But the ombudsman disputed this, and contacted Halifax to say it was in no-one's interest to publish misleading information. Halifax ignored the ombudsman's office, declining to withdraw the information which is still on its website. The row followed the ombudsman's ruling five weeks ago which we reported here on Money Box which overturned the bank's policy of charging some customers a higher mortgage rate than others.

At first Halifax insisted that the ruling only implied to the customer who had complained and anyone else had to write in if they wanted compensation. So Monday's offer to compensate 10,000 customers and make a payment to 20,000 others was an important concession -perhaps spurred on by Nationwide who as we reported on Money Box is giving 90 million pounds to all its mortgage customers affected by a similar ruling about its unfair mortgage position. After the concession Halifax spokesman Shane O'Riordain told Radio 4 he hoped this would end the bank's problems:

O'RIORDAIN: We have clearly distilled the principles underlying his judgement so we're very confident now that we have turned the final page of the final chapter in this story. We want to get on with giving our customers a better deal just as we've given half a million customers a better deal over the last 18 months, and we're very proud of that.

LEWIS: But the story didn't end there. Shortly after the ombudsman had told Halifax its statement was misleading the theme was taken up in the House of Commons. Brent North MP, Barry Gardiner predicted that Halifax would ultimately have to do much more:

GARDINER: I am confident that ultimately Halifax will be forced to give way and to compensate all of its affected customers. That cost maybe as much as 200 million pounds that presently the company is trying to retain for its shareholders as its against its policyholders.

LEWIS: His accusations were taken up by the press and this weekend the onslaught continues - shameful, pitiful, bizarre, penny pinching, a blunder, descended to the gutter, are just some of the terms used against Halifax Bank of Scotland, which likes to call itself a new force in banking. After this week new farce might be closer. And despite the clear damage to the bank's reputation, Halifax spokesman Shane O'Riordan refused our invitation to come on the programme to defend the bank or explain its position. Our requests for the HBOS chief executive James Crosby were refused point blank. Well Money Box's Chris A'Court is here to explain how things stand and what Halifax customers should do now - Chris?

A'COURT: Yes let's be clear again Paul, who gets compensation or a refund of these overpayments shall we? First it's Halifax customers who were on discounted or capped rate mortgage deals and who complained to the bank that they were stuck on a higher rate than that available to other customers. Now these people were effectively overcharged by Halifax from March last year according to the ombudsman's ruling, and so they get money back. Typically, says Halifax, that's 350, but they must have complained by January 31st this year and will only get the interest backdated to the date they complained, so people who complained earliest will do best Paul but those who complained late, say in January will get very little as Halifax clearly seeks to save every penny it can. But all will get a further 150 for inconvenience.

LEWIS: So what about people who complained from the 1st February?

A'COURT: If you complained in February perhaps using the letter that Money Box and others published you'll only get a 100 ex gratia payment, not compensation. But if you complained after the 3rd March Halifax says you'll get nothing.

LEWIS: And does everyone have to accept that? - is it really too late to complain?

A'COURT: No you don't have to accept it and it isn't too late to complain to the ombudsman. The Halifax has told customers - any customers who didn't complain by the 1st February not to bother because they won't succeed. But staff at the ombudsman's office told me very clearly this week that the bank just can't say that. He will decide whether those people have a case if they complain to him. He might decide that those who complained after February 1st should be compensated in full. They're expecting many more cases to be brought to them when customers run up against a brick wall at the Halifax.

LEWIS: And looking beyond Halifax Chris, there are similar cases of unfairness against Abbey National alleged aren't there? What should its customers do?

A'COURT: Yes, there's no final ombudsman's ruling on Abbey's situation at present, but given how Halifax is primarily paying out refunds to customers who complained early on and in writing, any Abbey National customers who feel that bank's mortgage policy treats them unfairly should probably put pen to paper without delay, and the mortgage centre address will be on their statements and documents.

LEWIS: Thanks for that Chris. Now more and more people are talking to me about property as an investment and you can't blame them. With share prices as low as they were three and a half years ago and real returns on cash and bonds at around well 3% after tax, there's a growing interest in investing in something more tangible. For many people that means property. You don't have to buy bricks and mortar or even concrete, glass and steel - you can put your money into properties through a unit trust and there's even an Isa to investigate. Money Box listener Barbara is eager to learn more about whether it might be right for her - perhaps saver, perhaps a route to a better return.

BARBARA: I work for a small company which has rented offices at an exorbitant sum of money it appears - so somewhere someone is making quite a bit of profit. The investments that we have, many of them have not been doing terribly well, so we're looking to shift and I've been advised that commercial property funds at the moment are pretty buoyant, but I'm apprehensive. I'm wondering whether they really are a good investment?

LEWIS: Well to find out let's talk to Patrick Connolly who's in Bristol - he's from Chartwell Investment Management. Patrick, when you buy into a property fund, what exactly are you putting your money into?

CONNOLLY: Hello there - yeah most people when they buy into a property fund assume they're buying actually bricks and mortar, a commercial property. But that is not necessary the case. A number of property funds out there actually invest very heavily in property shares, so those people like the caller just a second ago who think they're actually trying to diversify away from the stock market by investing into property don't actually achieve that in many cases.

LEWIS: So you're buying into shares in companies that deal in property so it's sort of almost in property but not quite directly?

CONNOLLY: Exactly right yes but obviously you're still very reliant on the stock markets.

LEWIS: How are they looking though as an investment because if property does well these firms presumably will do better than maybe the average share?

CONNOLLY: You could certainly argue that. I mean we are certainly very bullish about the prospects of commercial property, or certainly not negative on commercial property going forwards, but then if you're looking at property shares a lot of those will also focus on residential property as well and albeit that the residential property market may not have peaked it's certainly a long way off its bottom at the moment.

LEWIS: Now one of the problems with all investments like this is returns are low and then the Chancellor takes 20 or even 40% if you're a higher rate tax payer. Can you shelter these in an ISA, in a tax free investment ISA?

CONNOLLY: The answer to that is only just. There are only two funds out there that will allow investment into an ISA- one of them from Aberdeen - invests solely in shares rather than bricks and mortar. There is a new fund that's recently been launched by Scottish Widows which does allow you to invest solely into bricks and mortar commercial property. That fund has a limited tranche and is due to close this Tuesday, albeit the Scottish Widows are looking to launch a similar fund again, some time early in the next tax year.

LEWIS: So briefly to sum up Patrick, who should be thinking of putting some money into property?

CONNOLLY: Most people who are looking into commercial property certainly and looking - looking at the rental income's attracted from them are those who are looking for income and who are looking to diversify their investments. I would suggest that property isn't really designed for the novice investor. It's designed for either those who are looking for the level of income, or those that are looking to diversify an equity portfolio they already hold.

LEWIS: Patrick Connolly from Chartwell Investments, thanks very much for that. Well of course if you want to invest more directly in property you may be tempted to join the nearly 200,000 people who've become landlords in the last five years, buying property to let it out as an alternative to those other forms of investments, maybe to avoid the restrictions on pension funds. But there are warnings this week that buy to let may no longer be such a good deal. The Royal Institute of Chartered Surveyors has found that landlords returns have fallen for the fifth consecutive quarter. For the last six years researchers at the University of York have tracked residential rents. I spoke to research fellow David Rhodes who's in charge of the project:

RHODES: Looking over the past six years which is as long as period we have at the moment, rents in the transactions index have fallen by around about a quarter within greater London. That's a drop from 293 per week in the first quarter of 96 down to about 217 at the end of last year.

LEWIS: That's Greater London. What's happened in the rest of the UK?

RHODES: If you look at the country as a whole, rents have been more stable than they have in Greater London. The average for Great Britain as a whole, they've dropped by about 2% - that's down to 176 per week from 180 but if you actually take London out of the equation they've increased by about 5%. They've gone up from an average of 93 per week to 97 per week over the six years.

LEWIS: David Rhodes of York University. Well let's talk now to David Bitner of mortgage brokers Charcol, and a bit of an expert on buy to let. David, should people still be considering buy to let?

BITNER: Certainly yes. The right type of property for the right type of investor will always look attractive in terms of the rental income that it can achieve and also the capital growth.

LEWIS: Okay tell us what the right type of property is?

BITNER: Well, lots of it's about location which is why the majority of investors have primarily concentrated on investing in London. London has a very transient population, people moving through, so that means that you have people who are actively looking perhaps not to buy at that stage but just to rent for six months, maybe a year to see if they like the area before they actually settle down.

LEWIS: But we have heard from David Rhodes at York that it is exactly in London that rents are falling and presumably yields are falling, returns are falling?

BITNER: Well definitely - I mean the property prices in London have rocketed away, so whereas you used to be able to get a very good yield in certain parts of London where renting was popular, the prices have now rocketed up so fast because there's been a lot of people entering the buy to let market and increasing the supply of properties available to let, but also people paying over the odds in terms of buying a property which they want to live in themselves, so whereas a rent of 1000 a month against 100,000 property used to be a good return, today the property might be worth 200-250,000 and the rent's hardly gone up from 1000 level it used to be.

LEWIS: Have we seen saturation in parts of the country?

BITNER: I would probably say that certain parts of London now yes we have. We are seeing areas where there is a lot of property available to let, that's forcing landlords to decrease their rents which sort of is a trend which causes rents to then spiral downwards. The problem that's there, it's not a problem for those people that bought three or four years ago because they've made so much money on the property value, and their mortgages are relatively small in comparison to the value of the property now. It's the people who've got into recently and who perhaps purchased at the top of the market over assuming on the rental income that they will receive which is obviously not taking into account any rental void or a lower rent.

LEWIS: David Bitner of Charcol thanks very much for that.

BITNER: Thank you

LEWIS: Now we've looked at the various problems with company pensions on Money Box in the last few weeks. This week though we look at the State pension, not problems but a major change. Serps is being replaced in four weeks time and the change is generally good news, but few people have heard it and fewer still understand the details. Louise Greenwood has been looking into this biggest change in the State pension since l978.

GREENWOOD: The new State second pension, or S2P as it's known is designed to help some of the most disadvantaged people in society get a better deal when they retire. For the first time it'll provide a top up to the State pension to people who are unable to work. People like mothers looking after young children and carers for the sick and disabled can apply - indeed anyone who has a legitimate reason for not working. Emily of East London is one of the millions of carers that S2P is designed to help.

EMILY: Come here, you can tell mummy about school today. What's happened in school today? I heard you been to Tesco - what did you get in Tesco today?

GREENWOOD: Despite what she says Emily is Duke's grandmother not his real mum. She's looked after him since he was a baby when he was diagnosed with severe autism. Emily was forced to give up her job as a teaching assistant to give him the full time care he needed. He's now 13 and still requires constant attention.

EMILY: He's 24 hours supervision. I have about two hours sleep every night, cos even though I'm lying down I still have to be - Duke - go back to bed you know because he'll be coming down, rocking, trying to raid the kitchen looking for food and things like that. When people say how do you cope? - I said what is that? Cope, is there a word called cope?

GREENWOOD: There are millions of carers across the UK like Emily who look after others at great cost to themselves saving the government and tax payers billions of pounds in the process. Whilst she was working Emily was able to contribute to an occupational pension but because she hasn't worked for so long there's now a big hole in her retirement fund. Emily is 53 and plans to carry on caring for Duke for the foreseeable future. She says the prospect of surviving on just the State pension when she's old fills her with dread:

EMILY: If I'm getting a decent pension that alone would give some incentive to say you know at least the government recognise, acknowledge, appreciate, what I have done in the past and then this is my pay day, but with what is happening now, pension wise, I hope I'm not around for pension to be honest because how am I going to live? - you know from hand to mouth. This is not really quality of life for all that we have done and saved the government.

GREENWOOD: From April under S2P Emily will earn an extra 1 on top of her State pension for every future year she spends caring for Duke until she's 60 - an improvement but not a huge sum of money. That's why Diana Whitworth, chief executive of Carers UK, a support group for people like Emily says she can only give the plans a cautious welcome:

WHITWORTH: The amounts of money that people will see in the short term of course won't be huge. If you're 55 now, a woman who's 55 and caring by the time you've reached the age of 60 will only make a difference of 5 a week, but I am sure that they would prefer to have that 5 rather than not at all.

GREENWOOD: Carers UK estimates that there are over five million carers across the country and S2P can benefit the half of those who've been forced to give up their jobs to look after others and in so doing have lost out on an occupational pension, but there are concerns:

WHITWORTH: If we have one reservation about the second pension for carers is that the government refused to back date it and that means that the many hundreds of thousands of people who have given up work for care during their lifetimes won't get any benefit from this at all.

LEWIS: Diana Whitworth there of Carers UK. Now Louise this is the biggest change in State pensions in over twenty years. It replaces Serps, the State Earnings Related Pension Scheme for people in work and as you said it'll now help lower paid people and those who don't work but look after someone else, but the government seems to be keeping very quiet about it?

GREENWOOD: Yes its legislation was approved by Parliament back in July 2000. The launch is just under a month away and there's surprisingly little information for people who think they can benefit. The Department for Work and Pension is preparing a leaflet about the State second pension, but it hasn't even been printed yet. You can however order a copy through a help line number or you local DSS office.

LEWIS: And just remind us again who's eligible?

GREENWOOD: Well this is the first time that people with no wage can improve their basic State pension. It's given on the basis that they're already claiming other benefits - mothers caring for children under six for example who want to claim must be getting child benefit, carers looking after the sick or disabled must be getting either invalid care allowance or other similar benefits like home responsibilities protection. However, if you're unable to work because you're sick or disabled yourself it's slightly more complicated. You'll be able to get S2P once you get to pensionable age for each tax year that you were claiming either incapacity benefit or severe disablement allowance, but only on the condition that you've paid some National Insurance Contributions.

LEWIS: Louise thanks and details of the numbers to find out more about that, indeed about everything are with our audience line and on the Money Box website and I'll give you those numbers at the end of the programme. Now National Savings has always had the reputation of being safe, after all it's backed by the government. But its investments have always been well a bit boring for people who wanted to take a bit more risk. Now it hopes to attract new money through its very first investment linked to the stock market. National Savings or as it's now properly known National Savings and Investment is inviting applications from people who want to put at least 2,000 away for five years. The return is linked to the rise in the value of shares in our biggest 100 companies, measured of course by the FTSE 100 index. If the index falls though your initial investment is safe and will be returned to you. Well Dwane Williams is Commercial Development Manager from National Savings - he's with me. Douane, how does this work, how can you make these guarantees?

DWANE: Well as you say it's a new exciting offer from National Savings.

LEWIS: No I didn't say it was exciting - you said it was exciting!

DWANE: It offers customers stock market growth potential with absolutely no risk to their capital and the maximum return that we will offer people depending on the performance of the FTSE is 65%.

LEWIS: So if the FTSE index goes up by 65% or more over five years you're capped at 65%. Now, on my calculation that's about 10.5% compound interest. What's the worst you can get on it?

DWANE: Oh well the worst is if the FTSE doesn't perform and actually goes down over the period, then we'll return your original capital back in full and that's regardless of stock market performance and that's backed by the Treasury.

LEWIS: Right. Now you can get what 4% in a savings account or indeed with National Savings, perhaps a bit more. The stock market would have to grow by what? - about 17/20% to give you that kind of return. So that's the gamble you're taking and as I was saying earlier it's back now where it was three and a half years ago the stock market, it's not done very well has it?

DWANE: Well the average performance over - we've looked over every five year period for the FTSE 100 index since l984 and the average performance over all five year periods is actually 63%. So if the market performs on average then people will do very well.

LEWIS: There is one snag though isn't there, it's a five year investment. What happens if I really, really desperately need that money after two years?

DWANE: Well we've been very, very clear in all our literature Paul that if people feel they're not happy with tying up their investment for five years then they certainly shouldn't invest. And we do make that very clear in the literature.

LEWIS: Okay Dwane Williams, Commercial Development Manager from National Savings thanks for that. Now last summer Barclaycard decided to drop free flights and cheap wine from its rewards scheme. Since the l980s Barclaycard customers have been able to collect points every time they use their card to save up for free flights. But suddenly they found the scheme scraped, in some cases weeks before they were planning a trip of a lifetime. Instead they were offered cheap CDs or price cuts in restaurants which didn't go down too well. After protests from Money Box listeners and others, Barclaycard reluctantly gave a temporary reprieve to the free flights and wine. And that reprieve was due to expire at the end of this month. They still claim though that their research showed most customers preferred that they move away from bigger value rewards, but customers have continued to tell us they disagree. People like Suzanne from London is typical of the Barclaycard customers who contacted us to say they've cut down on using their Barclaycard:

SUZANNE: My husband and I first got out a Barclaycard simply because he was so attracted by the range of offers if he spent pretty heavily on the card which we do. We were getting thousands of points a year and using it on all sorts of things. They had a huge catalogue of free gifts, not to mention the flights and the sorts of things they offer now - some paltry little leaflet they send out is really quite unappealing. I feel a bit short changed now that there's really no point having a Barclaycard.

LEWIS: Well today we've got good news for Suzanne and of course others - Money Box can reveal that Barclaycard has given in to customer pressure and the free flight offers are to continue after all. I asked Ian Barber of Barclaycard whether they'd now admit that trying to drop them had always been a huge mistake?

BARBER: Well I don't think we got it completely wrong, certainly the short term rewards that are in the brochure - you know the response to those has been absolutely fantastic. I think that the key point is with eight million customers perhaps we were a little nave to think that you know there wouldn't be people out there that wouldn't respond. Hopefully what we've demonstrated is that we listen and make amends when we make mistakes.

LEWIS: Yes I mean you did have to be carried kicking and screaming into this at the time as I remember. What's happening to the other rewards, the short term rewards?

BARBER: There's a mixture of the two now, you have the flights, you have the wine, the sort of the bigger ticket items if you like, but there's also some of the shorter term stuff so hopefully we're keeping everybody happy.

LEWIS: So is this a permanent change? Can people save up for flights? - cos one of the problems was people had saved for years for these flights and then they were taken away. Can they save for flights now knowing that they don't have to spend them in the next few months, this is a permanent feature?

BARBER: It's never permanent and I think that's an important point to make. Unfortunately we can't sit here now and say these flights will be available in six or seven years time and I don't think any company could. The important point is they're available for a minimum of twelve months. The flight offers goes through to February next year as a minimum, so I think that's a reasonable period of time in terms of us being able to give a guarantee of you know a length of time. Who knows what's going to happen in the future particularly the way the airline industry is at the moment, but the bottom line is if we can possibly get them in there we will.

LEWIS: Ian Barber of Barclaycard. Barclaycard listening to customers and while we've been on air we've had a lot of e-mails about Halifax, many of them following up on our line about them being not very helpful to customers but we bring you more of that next week. That is all we have time for today. You can get more information on all the items on today's programme by calling the BBC Action Line 0800 044 044 Calls are free on 0800 044 044 Or of course there's our website, Personal finance stories all week on Working Lunch - BBC2 at 12.30. Vincent Duggleby's here on Monday with our phone-in MONEY BOX LIVE on how to use your home to give you more spending money if you're over 55. Our email address is I'm back with MONEY BOX next week. Today the reporter was Louise Greenwood, the producer Chris A'Court, and I'm Paul Lewis.

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