C&G swims against the tide: The building society is set to break its ties and stop giving financial advice, reports Vivien Goldsmith

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The Independent Online
CHELTENHAM & GLOUCESTER Building Society home buyers will have to go elsewhere for advice on setting up any investment scheme to repay their interest-only loans after the society renounces its right to give financial advice in November.

The society, which has been tied to Legal & General for five years, is going against the trend of ever-closer links in which building societies have been keen to sell insurance companies' investment products such as personal equity plans and bonds, as well as endowments to back mortgages.

C&G said the decision to restrict its activities to simple home loans - interest-only or repayment - and deposit-based savings was taken before the Government announced a harsher disclosure regime. When home buyers see how much of their money is being eaten up by commission and charges, repayment mortgages will gain in popularity.

Jean Eaglesham, head of the money unit at the Consumers' Association, said: 'Once we get hard disclosure of commissions and charges in cash terms the squeeze will really be on endowments.'

C&G began the process of untangling the investment behind mortgages three years ago when it started issuing interest-only loans and allowing borrowers to decide how to repay the sum at the end of the term.

Andrew Longhurst, chief executive of C&G, said the society was perfectly happy to accept borrowers with no savings scheme at all, who said they were relying on an inheritance from granny to repay the mortgage.

In practice few mortgages run their full term. Borrowers tend to trade up as their children grow, and then take capital out of their property as they move to smaller homes in retirement.

Two large societies, Bradford & Bingley and Yorkshire, have remained independent of any insurance company. But they have registered as independent financial advisers in their own right.

National Counties Building Society has also set up an independent investment advice arm. The building society does not insist on pre-arranged methods of repayments. Tim Cadel, the marketing manager, said the most important factor was the property - backed up with indemnity insurance for loans of more than 70 per cent - followed by the standing of the borrower. Any collateral such as an endowment policy or unit trust saving scheme comes as a last consideration.

Northern Rock Building Society, which now becomes the biggest building society tied to Legal & General, said that the percentage of endowment mortgages had slipped from 84 per cent last year to 80 per cent. Like Cheltenham & Gloucester, it relies heavily on mortgage business being introduced by financial advisers, with only around 20 per cent of loans generated by the society itself.

But a Northern spokesman said it would not abandon life insurance and investments as it saw a future in selling these unrelated to mortgages.

Ken Hughes, deputy general manager of Norwich & Peterborough Building Society, said he was 'staggered' at C&G's decision. 'It's contrary to the whole way that bancassurance is going.'

He said N&P, which is tied to Commercial Union, was keen to sell investment bonds, unit trusts and PEPs. 'If people are switching out of building society accounts because of low interest rates, we would rather keep them as customers.' It earned pounds 4.75m in commission last year, but just pounds 300,000 related to endowment policies.

Halifax Building Society, which is tied to Standard Life, said it had no intention of withdrawing from selling life insurance. A spokesman said: 'Our market research tells us that customers like to have a wide range of products to consider, even if they do not take up an endowment.'

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