Your Money: Attraction of fixed rates

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The Independent Online
THE threat of leaping interest rates can be frightening - especially when you have a large mortgage to feed every month.

While all the pressures on interest rates appear to be downward at the moment, home buyers are still tempted by fixed-rate mortgages, particularly as they are getting fixed at cheaper and cheaper rates as the weeks go by.

The Portman Building Society, for instance, has a mortgage fixed at 7.5 per cent until January 1995. There is no fee, you don't have to take the in- house buildings or contents insurance, and a repayment mortgage will do nicely.

That's a pretty tempting offer. But what if interest rates are pushed ever lower in an effort to stimulate the economy? Would anyone who took this deal be kicking themselves?

The way to view it is as an insurance policy against rising rates. But 'heads I win, tails you lose' deals are also on offer. Capped rates can never go above a set level - usually the payment rate at the outset - but they can go down if rates continue falling.

These rather fancy mortgages have usually been offered by fringe lenders, but last week the Abbey National, the second largest mortgage lender in the country with a presence on most high streets, threw its first cap into the market. It weighs in at 8.85 per cent until July 1995.

There is a pounds 250 fee, which is not too out of line, but if rates do start falling, borrowers will pay 0.25 per cent more than the standard rate. Most capped rates do not impose this sort of loading on the downside. But Abbey says this was the price of getting the cap so low.

At least with a front-line lender, the danger of spending the rest of the mortgage term regretting that you succumbed to the lure of the glittering cap is diminished.

LLOYDS Bank has claimed the moral high ground in writing to its 4.5 million customers to ask for their express permission to circulate their names and addresses to all corners of the bank so that offers of life insurance and investments can be directed to their doormats.

The first letter in the early spring said the bank needed the customer's consent before it could start turning on the marketing tap. There was even a bribe of pounds 1,500 of death benefit insurance for those who signed up.

But by the time the second letter was sent recently to a customer at the Charing Cross branch, the letter said the form was needed to confirm 'that any matters relating to your finances should only be available to the Lloyds Bank Group'.

The clear implication was that by signing the form headed 'Customer Confidentiality', you would be gaining privacy, when in fact the exact opposite was the case. No signature means absolute privacy, including the right not to have details given to other arms of the bank. Signing erases that right.

What a shame Lloyds could not have continued its policy of trying to be upfront.

BEWARE the benevolent monster of an employer who makes you redundant and softens the blow with a spot of redundancy counselling. It might land you with a tax bill of several hundred pounds.

While the counselling is not taxed as a benefit in kind like free meals or holidays, it counts as part of the redundancy package. This is tax free as long as it comes in at under pounds 30,000. If it tips you over the scales, you pay tax.

THE Government's leasehold reforms, which were such vote winners in the election, look like stirring up a good deal of discontent.

The National Consumer Council says the proposals do not go far enough and exclude many leaseholders for no good reason, such as those in blocks where more than 10 per cent of the space is non- residential.

Two thirds of flats in a block must be on long leases and two thirds of them must vote in favour for collective enfranchisement. The Commonhold Flats Campaign would like to see blocks with a simple majority on long leases eligible to enfranchise their leases.

The Department of the Environment claims that the abolition of the upper limits on rateable values under the Leasehold Reform Act will make 'almost every house' enfranchiseable.

But many London estates are owned by landlords who have ensured that the ground rents are high enough to put the leases beyond the Act, and these will remain so.

It all adds up to a great exercise in raising expectations and will do nothing to restore the Government's popularity.

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