C&G's pounds 500 bait gives it edge on mortgages: Vivien Goldsmith explains how the Lloyds windfall applies to new borrowers for a year

THE shower of money that savers and borrowers with Cheltenham & Gloucester Building Society will receive from the takeover by Lloyds Bank will also go to anyone taking out a home loan with the society before the deal goes through next spring.

Borrowers will get a flat pounds 500 regardless of the size of their mortgage - a great 'cash-back' offer that gives the society a real edge in the mortgage stakes over the coming year.

Andrew Longhurst, chief executive of C&G, said savers were subject to stringent rules from the law governing building societies. But it would also be unfair to give them the opportunity to stuff cash into their accounts and earn over 10 per cent on the money because of the coming conversion to bank status.

But borrowers, he said, receive a flat-rate payment. The size of the loan is irrelevant. Borrowers do not flit in and out of home loans. So all new borowers who complete mortgage applications before the conversion date will qualify for pounds 500.

To qualify for the flat pounds 500 paid to savers with membership accounts, and children under 18, savers should have had their account open on 31 December and keep it open until the deal goes through.

All 1 million savers, including those in the London Deposit Acount which does not have voting rights, will receive a percentage payout - at least 10 per cent of the amount in their accounts on either 31 March 1994 or completion day next April or May - whichever is lowest.

The percentage is bound to be above 10 per cent as C&G would not commit itself to a payment it could not be sure of covering. The amount depends on how much remains in accounts on the crucial conversion day, and how many savers close accounts in the meantime.

Savers can allow funds to dip during the intervening period. But they should make sure - borrowing the cash if necessary - that funds return to the 31 March level on the crucial day next spring, to qualify for the maximum payout. And they should avoid closing any C&G account.

There is an overall limit of pounds 10,000 per account. But individuals with more than one can qualify for larger payments. The average saver entitled to vote will receive over pounds 1,700 - a flat pounds 500 plus pounds 1,200. The 60,000 depositors in the London Deposit Account, which does not have voting rights, have larger balances - an average of pounds 25,000 - so they will be entitled to average payments of pounds 2,500.

All this cash comes straight from Lloyds Bank and is not a raid on the society's reserves. It will inevitably be seen as a bribe to C&G savers and borrowers to vote for the deal. The society needs a large turnout of voters - half the investors with a vote or members holding 90 per cent of balances. It then needs three-quarters of those voting to approve the deal. The borrowers have a separate vote that needs a simple majority.

C&G has not set up an information office. It will send information to savers and borrowers by post. Staff in branches are not allowed to help with queries. Payments will be made directly into accounts except in the case of Tessas already up to the maximum limit.

Much of this cash will inevitably be withdrawn from the C&G as investors hunt for the next building society to convert from a mutual organisation owned by its members to a bank - either as a stand-alone outfit or part of another organisation.

Front-runners include Halifax, Alliance & Leicester, Woolwich, Leeds Permanent, Bradford & Bingley, National & Provincial, Birmingham Midshires, Northern Rock, Yorkshire, Portman and Norwich & Peterborough.

Savers should look out for signs that something is afoot at a building society - they were all there at C&G. It began corporate advertisments and refined its membership list, as preliminaries to changing its status.

All members of Abbey National received 100 shares in July 1989 irrespective of the size of their holding. The 100 shares have more than trebled in value from pounds 130 to pounds 445.

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