Personal Finance: A failure to agree terms

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RESEARCH carried out by the Consumers' Association magazine Which? on the standard of advice offered by independent financial advisers, banks and building societies has enraged General Accident.

The magazine sent out a couple of researchers posing as potential investors to 30 financial advisers.

On the basis of the advice received by the researchers, Which? claimed that big financial institutions were continuing to offer products based on the commission they would earn rather than the suitability of the advice.

In particular, Which? highlighted the practice carried out by many financial advisers of selling whole-life products rather than term-insurance products. On the whole, the former pays the salesman a higher rate of commission and is much more expensive for the consumer.

Term insurance may be a more suitable contract for particular clients' needs. For instance, some people will only want life insurance until their children grow up.

With term insurance, you pay a monthly premium for a fixed period, and the policy will only pay out if you die during that time span.

According to the Consumers' Association, a term insurance contract would be the most appropriate contract for their researchers.

However, General Accident is refuting the very basis of the article. It is claiming that either a term product or a whole-life product would have been suitable. It is also claiming that the whole life product would not have paid the adviser more commission.

The row highlights the whole debate about the suitability of particular products. What is the best advice for any one person's needs? It also casts doubts over whether the Consumers' Association research is always correct. The two sides are in correspondence about the article. The results will be interesting.

THERE has been a desperate desire in the bosom of the home-owning classes to see some sort of recovery in house prices.

This really is the triumph of hope over experience, as two surveys on house prices published last week show. The two biggest building societies, the Nationwide and the Halifax, last week downgraded their forecasts for annual house-price inflation. At the beginning of the year, they were optimistically predicting rises of 5 per cent. Both are now cutting this back to zero or less than zero.

This will bring no solace to the one million people with negative equity on their homes. The various schemes offered by different building societies to try and spring them from this trap have so far failed to make any real dent in the problem.

Their only hope was a return to some of the house- price inflation experienced in the late 1980s. This looks increasingly unlikely to materialise this year.

The Halifax is hopeful that the beginning of next year will bring about some real recovery.

YET more gloom appeared for homeowners last week in the shape of the possibility of a further crackdown on income support from the Department of Social Security.

The DSS is expected to cut back on the amount of mortgage interest it will pay on loans for the unemployed.

At the moment, homeowners who become unemployed get the interest on their mortgages paid up to a maximum loan of pounds 125,000. The Government is expected to cut this back to pounds 90,000 in the next budget in November.

There are also rumours that the Government intends to abolish the benefit altogether for anyone taking out a new mortgage.

This capping of benefit could push more people into arrears on their loans, cause more repossessions and act against any recovery in house prices. The abolition of the benefit would put many people off homeownership completely.