In the '70s and late '80s, the bank or building society employee's mortgage subsidy was a handy perk. Alistair Blair looks at how it's faring in the '90s.
Only a few inflationary years ago, the staff mortgage subsidy was a perk without equal. Most banks and building societies had capped the benefit years earlier, when the Inland Revenue pointed out that it was income by another name. Nonetheless, when the rest of us were flailed by double-digit interest rates, those who had a half, or even a third, of their mortgage interest payments subsidised by financial employers thanked their lucky stars. They spend less time giving thanks nowadays.
Among the City's highest-paying employers such perks have lost their relevance and been swept away. BZW bought its scheme out three years ago, rolling the money into basic salary. At SBC Warburg, a 'harmonisation process' saw SBC's subsidy (Warburg's had already gone) disappear into a 'flexfund': employees get up to £6,500 a year on top of basic salary, and choose how they want to use it to enhance standard benefits such as pension contributions and private medicine. If they want to put it towards their mortgage, they simply take the flexfund as taxable salary. Union, a small City bank, had a £50,000 loan limit deal which was tied to a Coutts lending rate until two years ago. Then, says personnel director Rachel Pickavance, 'we got rid of all quirks - cars and mortgages included. Now pay comes in just two forms: basic and bonus.'
But the tradition is not dead, though it does fall short of previous levels of munificence. Small merchant bank Singer & Friedlander pays all employees a 'mortgage subsidy' - whether they have a mortgage or not.
They get the difference between 5% and the Halifax variable rate on £40,000 worth of loan. The formula was devised 'well over 10 years ago' and has been left to suffer the depradations of house price inflation. It's at present worth just £800 a year gross.
There was a time when the Bank of England bestowed - upon some employees - mortgages of five times salary at 3%. Now here was a serious perk. It was closed to new employees in 1980. These days, the Old Lady's home-movers are sent round to the Halifax, with whom 'they deal on the same basis as any other customer', in the words of a spokesman. But, he adds, 'whatever they come back with is subsidised down to a fixed rate of 5%, up to a limit of around £70,000 of loan'. Well that's not quite 'five at three', but it's not quite 'any other customer' either. With applicants from the Bank having such a headstart, the man at the Halifax might occasionally be persuaded to lend a more exciting multiple of salary than most people would see.
It's certainly well ahead of the subsidy he himself enjoys. The interest rate side of the Halifax deal is 'half the prevailing variable rate, but the employee never pays less than 5% unless prevailing rates go below'.
And let's hope we live to see that. The Halifax covers up to £55,000-worth of loan and its junior employees like the fact that it takes into account a spouse's income, or even that of a 'future life partner'. No doubt there are subclauses to help the Society determine precisely who fits that bill. Barclays Bank and Lloyds TSB run similar variable rate discount schemes.
However, there are still plenty of fixed-rate schemes about, which banking professionals might regard as the Rolls-Royce product. Abbey National staff get 7% fixed, but only on a loan of up to £45,000. Some employees, engaged in doling out to the public its variable rate loans at a current 7.04% will have calculated the benefit at a measly £18 a year. Presumably malcontents would be referred to the benefit compared to the fixed rate which Abbey offers the public: 8.59% and only for 10 years. But Abbey is now reviewing its staff scheme and thinking of switching to a discounted variable rate basis.
NatWest too has a 7% fixed-rate deal, and will lend up to £70,000. The bank is one of the few currently offering the public fixed rate loans for full mortgage terms - but at 10.5%, something which starkly underlines the attractiveness of the staff scheme. But if you are a retail banker looking for a job, perhaps you should put the Bank of Scotland at the top of your list. Its staff offer is second only to the Bank of England's: 5% fixed on four times salary up to £60,000 worth of loan. Right now that's worth £3,300 gross if you appreciate the virtues of fixed rates, and £1,200 even compared to the variable. But should the next interest rate cycle be as volatile as the last one, the benefit against variable rates would rise to £6,000 a year. If the economy's performance deteriorates, Bank of Scotland staff will surely have cause to thank their lucky stars.