Julian Knight: There’s a way round those mortgage fees

The days of self-certification and 100 per cent buy-to-let home loans are long gone, but there is renewed innovation and even – dare I say – competition in the UK mortgage market.

Last week, for example, we had First Direct lowering its mortgage arrangement fees to just £99; which compares remarkably favourably to an industry average of nearly £1,000. The unprecedented rise in arrangement and other mortgage fees has been a quiet scandal rumbling on for the past few years. Basically, mortgage fees have nothing to do with the cost of arranging or managing a mortgage – and why should lenders charge anyway? Surely their reward is the interest they gather on the loan? It's a plain old anti-competitive ruse set up to discourage switching providers.

Now it would be great if First Direct's move bust this cartel operation by the mortgage industry. But it won't manage this on its own because it has a tiny customer base and cherry picks the very best borrowers – loan-to-value ratios of 65 to 75 per cent are a major barrier for most. What's more, First Direct doesn't deal with brokers so most consumers looking for a mortgage won't even see its products.

On the brokerage side, there is a bit of innovation going on, too. On Friday, John Charcol launched its interest-rate protector – which sounds a bit like the most rubbish superhero imaginable. The protector does exactly what it says on the cape and allows you to purchase what is, in effect, insurance, in case interest rates rise. You select what rate you want a cap to kick in at, and for how long. The lower the rate the cap kicks in at, and the longer the policy lasts, the more it costs. It can work out a lot cheaper than, say, remortgaging to a fixed-rate deal – particularly with those punishing arrangement fees. Best suited are those on low variable-rate mortgages, perhaps pegged to the Bank of England base rate. If they are paying, say, 1 per cent, but want the surety of a fixed-rate deal, they would have to swallow a quadruple increase in mortgage costs to get it. Purchasing one of these caps looks like a much lower-cost alternative.

Paradigm or waste of time?

Don't you just love financial jargon? I am being sarcastic, of course. But if I was to ask you what you think when hearing the phrase "absolute return funds" you could be forgiven for saying that sounded a safe investment, sure to grow your cash pile even in a market downturn.

Heavily marketed, absolute returns have proved a hit with investors. In terms of money flowing into them the absolute returns sector has been near the top of the sales charts in 21 of the past 26 months. However, they are expensive to invest in, and the performance of most has been lamentable. Take Octopus UK Absolute Equity Fund. According to AWD Chase de Vere, it has lost nearly 20 per cent this year alone, despite its mission statement, "to deliver a positive return in all stock-market conditions". Overall, more absolute return funds are losing, rather than making, money and last year when we had a remarkable growth in the stock market they massively underperformed.

The proponents of absolute return funds – marketing managers, mostly – say that the idea is not to run alongside, for example, the FTSE, but to grow steadily by using complex financial strategies such as hedging, and in some cases holding a diverse range of assets. They also say it's too soon to make decisions on this sector, which has only been going a couple of years.

But this has been an extraordinary couple of years on the markets; we have had swings which you would normally see only over a decade, with banking and government debt crises. This has been a fantastic opportunity for absolute returns managers – a proving ground like no other, and most have been found wanting. In short, it's not too soon to start drawing conclusions about absolute return funds and I'm afraid, like all other new paradigms of investment before them, they are looking like a bit of a waste of money.

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: Account Manager / Membership Manager

    £35 - 38k + Benefits & Bonus: Guru Careers: We are seeking an Account Manager ...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

    Guru Careers: Associate Director

    £50 - 80k: Guru Careers: We are seeking an Associate Director for the Markets ...

    Guru Careers: Associate Director / Director of Sound Practices

    £60 - 100k: Guru Careers: Our client is looking for an Associate Director of S...

    Day In a Page

    Giants Club: After wholesale butchery of Idi Amin's regime, Uganda’s giants flourish once again

    Uganda's giants are flourishing once again

    After the wholesale butchery of Idi Amin's regime, elephant populations are finally recovering
    The London: After 350 years, the riddle of Britain's exploding fleet is finally solved

    After 350 years, the riddle of Britain's exploding fleet is finally solved

    Archaeologists will recover a crucial item from the wreck of the London which could help shed more light on what happened in the vessel's final seconds
    Airbus has patented a jet that could fly from London to New York in one hour

    Airbus has patented a jet that could fly from London to New York in one hour

    The invention involves turbojets and ramjets - a type of jet engine - and a rocket motor
    10 best sun creams for kids

    10 best sun creams for kids

    Protect delicate and sensitive skin with products specially formulated for little ones
    Tate Sensorium: New exhibition at Tate Britain invites art lovers to taste, smell and hear art

    Tate Sensorium

    New exhibition at Tate Britain invites art lovers to taste, smell and hear art
    Ashes 2015: Nice guy Steven Finn is making up for lost time – and quickly

    Nice guy Finn is making up for lost time – and quickly

    He was man-of-the-match in the third Test following his recall to the England side
    Ashes 2015: Remember Ashton Agar? The No 11 that nearly toppled England

    Remember Ashton Agar?

    The No 11 that nearly toppled England
    Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

    US betrayal of old ally brings limited reward

    Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
    VIPs gather for opening of second Suez Canal - but doubts linger over security

    'A gift from Egypt to the rest of the world'

    VIPs gather for opening of second Suez Canal - but is it really needed?
    Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

    Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

    Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
    The male menopause and intimations of mortality

    Aches, pains and an inkling of mortality

    So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
    Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

    'How can I possibly be on the list with these writers I have idolised?'

    Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
    Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

    Bettany Hughes interview

    The historian on how Socrates would have solved Greece's problems
    Art of the state: Pyongyang propaganda posters to be exhibited in China

    Art of the state

    Pyongyang propaganda posters to be exhibited in China
    Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

    Vegetarian food gets a makeover

    Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks