FEAR OF FINANCE

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The Independent Online
It was the best of weeks and the worst of weeks for fear of finance: the week in which a judge awarded a Henley couple pounds 87,000 compensation against Lloyds Bank for bad advice from the manager. He lent them money to restore a house just at the top of the property market in 1988. Its value promptly slumped and they were forced to sell at a loss rather than the profit they were encouraged to expect.

Thousands cheered over their cornflakes, coffee or Campari sodas at the prospect of a bank getting its come-uppance, because no one can forgive a bank for the sin of charging you to look after your money and then charging you again to borrow someone else's.

That has been compounded in recent years by the sight of bankers throwing billions into loans to Third World countries in the 1970s and writing off a fifth of all they lent, then doing the same thing again with property companies in the 1980s - while simultaneously charging customers for letters warning them they have overdrawn and incurred penalty rates.

Unfortunately it looks as if the award did the couple little good. They are splitting up and still face a counter-claim for unpaid interest. It also looks as if the advice in this case was fallible because it was unusually straightforward and unconditional. Most bankers are careful to qualify advice to cover their backs, and will be even more so in future; granting credit alone will not automatically imply a guarantee that the investment will be successful.

Indeed, banks could not function at all if they were obliged to underwrite the success of every investment made with borrowed money. They could only back certainties, and they are few and far between.

It was also the week in which several hundred thousand borrowers who took out fixed-rate mortgages earlier this year - in the belief that they were protecting themselves against an impending rise in mortgage rates - found that they had made a mistake.

They are locked into paying up to 9 per cent on their mortgages for up to five years. Meanwhile their neighbours - who opted for cashbacks and discount mortgages linked to the societies' standard variable rates - are now reducing their monthly repayments as those standard rates fall back to 7.99 per cent. Pundits who three months ago were taking a rise in rates for granted are now openly speculating when the Chancellor will bring them down still further.

We are all being forced to become financial ex-perts to survive, but the lesson that nothing is guaranteed to go up is not a reassuring one. At least the stock market is rising, but that can't last for ever.

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