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.

Life and Style
Arts and Entertainment
Southern charm: Nicolas Cage and Tye Sheridan in ‘Joe’
filmReview: Actor delivers astonishing performance in low budget drama
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
Arts and Entertainment
Up my street: The residents of the elegant Moray Place in Edinburgh's Georgian New Town
tvBBC's The Secret History of Our Streets reveals a fascinating window into Britain's past
Albus Dumbledore, the headmaster of Hogwarts School of Witchcraft and Wizardry has been the teaching profession's favourite teacher
Luis Suarez looks towards the crowd during the 2-1 victory over England
Life and Style
Cheesecake frozen yoghurt by Constance and Mathilde Lorenzi
food + drinkThink outside the cool box for this summer’s frozen treats
John Barrowman kisses his male “bride” at a mock Gretna Green during the Commonwealth Games opening ceremony
peopleBarrowman's opening ceremony message to Commonwealth countries where he would be sent to prison for being gay
Sir Bradley Wiggins removes his silver medal after the podium ceremony for the men’s 4,000m team pursuit in Glasgow yesterday
Commonwealth games Disappointment for Sir Bradley in team pursuit final as England are forced to settle for silver
Alistair Brownlee (right) celebrates with his gold medal after winning the men’s triathlon alongside brother Jonny (left), who got silver
England's Jodie Stimpson won the women’s triathlon in the morning
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Junior Research Analyst - Recruitment Resourcer

    £18000 - £20000 per annum + OTE £25K: SThree: SThree Group has been well estab...

    Senior Analyst - Financial Modelling

    competitive: Progressive Recruitment: This really is a fantastic chance to joi...

    Associate CXL Consultant

    £40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...

    Business Anaylst

    £60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Business Anal...

    Day In a Page

    Backhanders, bribery and abuses of power have soared in China as economy surges

    Bribery and abuses of power soar in China

    The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
    Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

    Highland terriers steal the show at opening ceremony

    Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
    German art world rocked as artists use renowned fat sculpture to distil schnapps

    Brewing the fat from artwork angers widow of sculptor

    Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
    BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

    BBC takes viewers back down memory lane

    The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
    Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

    Nicolas Cage shines in low-budget drama Joe

    Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
    How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

    Make your own ice lollies and frozen yoghurt

    Think outside the cool box for this summer's tempting frozen treats
    Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

    Fiesta is UK's most popular car of all-time

    Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
    10 best reed diffusers

    Heaven scent: 10 best reed diffusers

    Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
    Commonwealth Games 2014: Female boxers set to compete for first time

    Female boxers set to compete at Commonwealth Games for first time

    There’s no favourites and with no headguards anything could happen
    Five things we’ve learned so far about Manchester United under Louis van Gaal

    Five things we’ve learned so far about United under Van Gaal

    It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
    Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

    Screwing your way to the top?

    Good for Lana Del Rey for helping kill that myth, says Grace Dent
    Will the young Britons fighting in Syria be allowed to return home and resume their lives?

    Will Britons fighting in Syria be able to resume their lives?

    Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
    Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

    Beyoncé poses as Rosie the Riveter

    The wartime poster girl became the ultimate American symbol of female empowerment
    The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

    The quest to find the perfect pair of earphones

    Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
    US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

    Meet the US Army's shooting star

    Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform