Personal Finance: Bad news for homeowners

HOMEOWNERS in some areas will not see the value of their property rise above the mortgage until the turn of the century, according to a report from the Henley Centre for Forecasting.

The authors, Chris Gentle and Daniel Dorling from Newcastle University, believe that the number of households in negative equity is actually rising rather than falling as reported recently by Woolwich Building Society.

This is largely because more people live in the South-east, which has been most adversely affected by the boom and bust in house prices.

Home ownership has stabilised at just over two thirds of the population. But this is oversaturation. Those who cannot really afford the monthly burden of home ownership were sucked in for various reasons including the Government's 'right to buy' policy.

This is why that even if the Chancellor, Kenneth Clarke, attacks mortgage interest tax relief in the Budget, the authors of the report The Future of Home Ownership believe it will have little impact on the housing market one way or the other.

The value of relief has been whittled away on two fronts - as interest rates fall it is worth less, and as house prices rose (remember that?) the pounds 30,000 ceiling covered a diminishing proportion of the cost of buying a home.

Add to that the Lamont Budget move to restrict tax relief to 20 per cent from next April and the real role of the relief is not such a big deal.

The money saved by doing away with it - pounds 5bn to 7bn a year - could be handed to housing associations to buy up property and expand the rented sector. And it could help homeowners by also making it easier for local authorities to buy up property and increase the stock of homes for low rent - their huge waiting lists show that there is a crying need for these.

If this both tickled up the property market and expanded the rented sector, what may look like an assault on homeowners could turn out to be a blessing in disguise.

There is of course a huge risk that the tax relief will be scrapped and nothing done to offset the damage.

THE FUTURES and options market has already opened up interesting possibilities for high-street investors who would never think of themselves as going within a hundred yards of such a bear garden.

Fixed-rate mortgages, five-year bonds linked to the performance of the FT/SE Index and those unit trusts that pay out an 'income' of 10 per cent all rely on trading futures or interest rate swaps.

Now Britannia Building Society has a bond, which matures next 1 October, that pays a higher interest rate if interest rates fall.

Now that the base rate is 6 per cent, this Reversal Bond pays 5.5 per cent gross on a minimum of pounds 5,000. If the base rate falls by 1 per cent, it will pay 1 per cent more, or 7.5 per cent on a base rate of 4 per cent. But if interest rates rise, the rate paid by the bond will remain static.

Gerald Gregory, head of treasury at Britannia, says the bond was put together before expectations of a rate cut were so firm. Rates available now would be lower.

Even if you can't tell a hedge from a swap, this looks like a perky place for shortish-term savings.

ADD to the adage that you should never invest in anything merely to save tax that you should never invest just for the perks.

The latest edition of the Guide to Attractive Perks for UK Shareholders from Hargreaves Lansdown, the financial advisers, lists Sketchley, Austin Reed, British Airways and P & O for their bonus offerings to shareholders.

It also lists Queens Moat Houses as offering a pounds 40 discount on classic weekends - but fails to point out that you can't actually buy the shares at the moment. They have been suspended since the end of March.