Tuesday, September 7, 2010

Dear Graham, I have a mortgage with a local bank and I received an email from them recently saying that they are going to raise the interest rate by one per cent. I signed the original loan agreement almost two years ago and it clearly states that the rate they used would be the official Emirates Interbank Offered Rate (EIBOR) plus a fixed percentage. The bank is telling me that they are going to scrap the EIBOR rate and introduce their own higher rate. There seems to be a catchall clause stating they can sell your liver if they want to. What do you think can be done?

I have seen this being done by a number of banks, and one local bank that is trying to do the same thing has seen their customers group together to consult with a lawyer. It appears that as there was no clause that allows the bank to change the base rate on which interest is calculated in the original sales agreement, it was a clear breach of contract.

The group has sued the bank and the individual court cases are going through the motions now. The lawyer told me that in your case, you need to have a good look at the original sales agreement (not any summarised ones) to make sure there are no clauses that allow the bank to change the base rate.

If you have a strong case, joining forces with other customers is a good idea and I can help if anyone else wants to contact me. It is sad that there are many institutions here that are arrogant enough to think that they are above the law and can do as they wish.

I have started a business here that imports goods from Europe and sells them locally. As I pay for the goods in euros and British pounds, it can be expensive for me if the exchange rate changes. Some of my customers have asked for 60 days to pay for the goods after they have received them and other customers typically pay late anyway. Currently, the exchange rate is working in my favour and I wonder if there is any way I can guarantee these rates for the immediate future? Also, I am considering insisting that payment for the goods be made when they have been received by the customer. I’m pretty new to the area and wonder how this would be accepted?

You know your business better than I do but if I was a customer that had an arrangement with you that allowed me to pay for the goods after I received them, I would expect this arrangement to continue. I don’t know what goods you are selling but it sounds like your buyers are anticipating selling your goods before they pay for them.

Effectively, you are funding their operation, which can be a standard practice here that is not just restricted to the retail market. While the exchange rate is currently working in your favour, you can also pre-set the exchange rate now for up to two years.

One businesses I know that has done this has made sensible predictions of what it will be spending over the next couple of years and have set the rate now. You will need to pay a deposit for this facility, which is to be expected. So far, they have been very grateful to me for the introduction.

I recall that last week you mentioned putting UK property into a pension fund to avoid paying Inheritance Tax (IHT). I’ve been taking advice and this process has been recommended but the adviser appears to not have all the answers. Where can I go for a second opinion?

You eventually came to me for that second opinion and I had a good look at the case.

On the face of it, you did have an IHT prob-lem and the pension route would have been a sensible solution. However, once you subtract the liabilities (outstanding mortgages) from your assets (the value of the estate), you do not have an IHT liability so there is no need for you to pay any unnecessary additional fees. If it ain’t broken, don’t fix it.

Graham Wolverson is an independent financial adviser with Pinnacle Asset and Wealth Management.
Email: graham@yourmoney-matters.com