Questions of Cash: Suddenly, a mortgage cost me Â£170 extra
Saturday 19 April 2003
Q I've just applied for a two-year fixed mortgage with Lambeth Building Society. Your best buy column quoted the fees as £390, which Lambeth also gave me on the phone. While processing the application Lambeth said I must pay £170 more as the valuer's fee. Were you were aware of this? I feel deceived.
SW, by e-mail.
A Lambeth's arrangement fee (which they call a "reservation/ application fee") is £390. The valuer's fee is treated separately, as is normal practice. The exception is where a lender may offer a free valuation. Lambeth makes the point that the detail on the fees is "clearly stated on the product sheet" which you "would have received ... when applying for the loan".
Ray Boulger, of broker Charcol, says it is not practical to include the valuation as part of an inclusive fees figure because valuers' fees are normally charged as a proportion of a home's value.
Q I have a Lloyds TSB Platinum credit card. I pay the full outstanding balance each month by direct debit, yet every month there is a small interest charge added. I have enquired about this twice. The first time the interest was refunded, the second time I received no reply. The small print is unclear.
In one place it says: "If you pay us the full amount in time to credit your account by the due date you will pay no interest." In another, it says: "Credits received four clear working days before the date shown will clear entry."
Can you explain why interest is charged on statements paid in full by the due date when there has been no cash advance? DH, Richmond
A The problem is not with the processing of the payment. The interest charges relate to cash withdrawals from earlier periods. When cash is advanced, interest accumulates from the date of the withdrawal and charged on the next statement. Interest on the interest will be charged the following month. This is standard practice.
Q I am in a well-funded final-salary scheme, and aiming for early retirement. I wish to convert some of the income into cash to pay off the mortgage. The scheme's conversion rate of £9 cash to every £1 surrendered has been unchanged for years. With annuity rates down to 5 per cent, surely the conversion factor should be much higher?
A The so-called "commutation rate" of £9 for every £1 is normal for men and explicitly permitted by the Inland Revenue. The usual figure for women is £11 because they live longer. The Revenue's involvement is because the lump sum is tax-free and it is keen to avoid abuse. The rate varies according to age. Some schemes authorise an actuary to apply a commutation rate reflecting the actual state of the fund.
These arrangements may have to be approved by the Revenue, which deters funds from this approach. In your case, the commutation rate means you may lose in cash terms. But this must be balanced by the convenience of taking a tax-free lump sum and early retirement means you have a call on the assets of the scheme ahead of those still in work. This could be important if the scheme is not as well-funded as you believe. Ultimately, it is likely to be up to trustee discretion.
You should consult a financial adviser with a pensions qualification.
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