Your Money: Don't fall for glitter of gilts

THE Government needs to raise about pounds 1bn a week for the rest of the financial year, so not surprisingly, it is looking for ways to persuade us to lend it money.

We are used to buying all sorts of National Savings products, but the world of gilts has always seemed a little esoteric, although you can buy them at the Post Office.

The Government, which discovered there was a great appetite for clipping newspaper coupons as it sold off the likes of BT and British Gas, is now inviting us all to clip coupons for gilts.

The current offering, 71 4 per cent Treasury 1998, is adding to a stock already trading in the market. The professionals will bid for the stock, and private investors will have to write cheques blind and get the average price paid by the professionals.

This mechanism involves an initial payment of pounds 53 and then a second one by 20 May of pounds 50 per pounds 100 of stock. This has been deliberately calculated to be an overpayment compared with the eventual price. The Bank of England will refund the change with the allotment letter about a week after next Wednesday's auction.

On the minimum investment of pounds 1,000, the cheque is likely to be around pounds 20. Don't be bedazzled by a Bank of England cheque and frame it to hang in the loo. That would be giving the Government money for nothing. Cash it.

There are two ways of looking at gilts. They are issued with a specific life, usually five to 15 years, and promise to pay out a set amount twice a year. You can plan to hold them to term and get back pounds 100 for every nominal pounds 100 worth of stock you buy, while collecting the income along the way, or you can turn them into cash at any time.

The second course might be the right one to take at certain times, as the prices of gilts will vary, chiefly in response to changes in interest rates all around.

A stock paying out 10 per cent might have looked stingy when rates soared up to 15 per cent, but now it looks too good to be true.

It is, because you will not be able to buy pounds 100 worth of stock paying 10 per cent for pounds 100; you will have to pay a price that brings the yield - the income compared with the price you pay - into line with current conditions (the interest rates on offer now and what the market expects around the corner).

The professionals took a shine to gilts as interest rates fell, and shares looked risky as company profits tottered.

But now that those famous green shoots really do seem to be putting down roots, the professionals are looking with renewed interest at equities. The ordinary investor may just be sucked into the market as the professionals head for the exit.

HOMEOWNERS in the South-east have been appalled at the huge increases in the cost of buildings insurance.

But one Kent broker, GN Bishop, has come up with a way for those paying high premiums to cut the cost.

As long as the property would cost more than pounds 150,000 to rebuild, the premiums can be halved by paying the first pounds 500 of any claim.

This may seem a huge burden. But think again. What is insurance for? Surely it is for disasters that you cannot afford to fund out of your own pocket. It should not be an economic proposition to claim for every minor mishap.

The broker will provide buildings and contents insurance with a pounds 500 excess. This only makes sense for those paying premiums of around pounds 2,000 a year for both forms of cover, who can cut their annual premiums to around pounds 1,200.

But it is about time that the insurance business started pulling back from the high premiums/claim-for-everything mentality.

AMID all the ra-ra optimism about the green shoots of the property market, there are still some snakes in the grass.

All the increases in activity are revivals from such a low base - the 1992 pre-election torpor - that they give percentages a bad name.

The South is beginning to see more hopeful signs, but there are still areas that have a long way to go to revival.

Peter Warburton of Flemings points to negative equity ghettos in areas such as Croydon. Here, first-time buyers can now afford to leap the usual first rung of the ladder and buy more upmarket property than they would have dreamed possible five years ago - leaving those who did start in a modest way at that point stranded and excluded from the developing housing chains.