Jeff Salway: Next mis-selling scandal may not be mortgages
INTEREST-ONLY mortgages are the next big mis-selling scandal. That’s the verdict of the chief executive of one of Britain’s biggest banks and, let’s face it, it should be the specialist subject for anyone in that position.
Anthony Jenkins is a new boss, however, at Barclays to be exact, so his comment needn’t meet the level of cynicism merited had it been uttered by his predecessor.
With a huge book of interest-only mortgages at Barclays you can understand why Jenkins is worried. There’s no doubt problems are stored up. With some lenders having pulled out of the market and others severely restricting their interest-only lending – ahead of a regulatory crackdown on the market – those without robust repayment vehicles lined up are effectively mortgage prisoners.
Some lenders, most notably those owned by Lloyds Banking Group, will no longer accept cash savings as a viable repayment vehicle. The large number of people who had planned to cash in on house price growth and use the proceeds to repay their loan certainly need to find a more robust repayment method.
The reality is that thousands of people on interest-only mortgages will have no choice but to stay with their existing lender, as no other deals will be available to them. That means being hostage to a standard variable rate that could rise at any time.
All this will make lenders nervous, given how keen they were to sell interest-only loans in the years prior to the credit crunch. When people realise they’ve been sold up the river, the complaints will flood in.
I’m not sure that makes it the next big mis-selling scandal, however. For that there is intense competition. How about structured products, for example. These investments, which usually promise to guarantee capital and provide some growth, are flying off the shelves at the high street banks – not least at Barclays, as it happens.
Unfortunately there’s an awful lot of mis-selling of structured products going on, with bank staff exploiting customers desperate for greater returns than currently offered by cash. If flogging products with five-year terms to pensioners in their eighties isn’t mis-selling, I don’t know what is.
Then there’s packaged accounts – millions of people are paying a monthly fee for benefits they don’t use. What about pension drawdown, pension reciprocation schemes and self-invested personal pensions? All in the mix for sure. We can even throw claims management companies into the mix, making millions out of the payment protection insurance (PPI) scandal by getting people to claim for compensation – even when they’ve never had a PPI policy.
If there’s one thing the financial service industry has honed to perfection over the past 25 years, it’s the mis-selling scandal. Jenkins is right to be concerned about interest-only mortgages, but I’m not sure they will be subject of the next big mis-selling rumpus.
Cameron’s costly complacency
DAVID Cameron claims to be more determined than ever, and so he should be after spending a month first watching the Olympics then sunning himself on holiday. More specifically, he returned to parliament this week determined “to cut through the dither that holds this country back”.
Given this appeared in a newspaper article last weekend you could be forgiven for thinking that dither may be an affectionate name for his Chancellor.
Remarkably, George Osborne was spared in the reshuffle and remains in situ, where he is doubtless ready to roll up his sleeves and inflict more pain on our ailing economy.
So what does Cameron mean by dither? It seems he’s talking about red tape. Yep, that’s what’s holding us back. Make it easier for employers to sack people and the recovery will be under way before we know it, in Cameron’s mind at least. A mind that’s apparently more occupied by Angry Birds than with the work of running the country.
He’s banged on about red tape before; it’s instinct and it keeps backbenchers happy. The economy was growing when the coalition government took office. Was dither holding us back then? It’s certainly not the reason for the current mess, nor is the previous government. For that Cameron and his complacent coalition can take a large share of the responsibility. Dither has nothing to do with it.
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