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.

Stephanie first after her public appearance as a woman at Rad Fest 2014

Arts and Entertainment
Banksy's 'The Girl with the Pierced Eardrum' in Bristol
art'Girl with the Pierced Eardrum' followed hoax reports artist had been arrested and unveiled
Oscar Pistorius is led out of court in Pretoria. Pistorius received a five-year prison sentence for culpable homicide by judge Thokozile Masipais for the killing of his girlfriend Reeva Steenkamp
voicesThokozile Masipa simply had no choice but to jail the athlete
Life and Style

Board creates magnetic field to achieve lift

Russell Brand at an anti-austerity march in June
peopleActor and comedian says 'there's no point doing it if you're not'
Arts and Entertainment
Sister Cristina Scuccia sings 'Like a Virgin' in Venice

Like Madonna, Sister Cristina Scuccia's video is also set in Venice

Arts and Entertainment
James Blunt's debut album Back to Bedlam shot him to fame in 2004

Singer says the track was 'force-fed down people's throats'

Life and Style
The Tinder app has around 10 million users worldwide

techThe original free dating app will remain the same, developers say


Endangered species spotted in a creek in the Qinling mountains

Bryan Cranston as Walter White, in the acclaimed series 'Breaking Bad'
peopleJust weeks after he created dress for Alamuddin-Clooney wedding
Life and Style
A street vendor in Mexico City sells Dorilocos, which are topped with carrot, jimaca, cucumber, peanuts, pork rinds, spices and hot sauce
food + drink

Trend which requires crisps, a fork and a strong stomach is sweeping Mexico's streets

Life and Style

Some experiencing postnatal depression don't realise there is a problem. What can be done?

Arts and Entertainment
Gotham is coming to UK shores this autumn
tvGotham, episode 2, review
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

    Senior Pensions Administrator

    £23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

    Corporate Actions Administrator / Operations Administrator

    £25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

    Customer Service Executive / Inbound Customer Service Agent

    £18 - 23k + Benefits: Guru Careers: We are seeking a Customer Service Executiv...

    ASP.NET Web Developer / .NET Developer

    £60 - 65k + Benefits: Guru Careers: We are seeking a ASP.NET Web Developer / ....

    Day In a Page

    Two super-sized ships have cruised into British waters, but how big can these behemoths get?

    Super-sized ships: How big can they get?

    Two of the largest vessels in the world cruised into UK waters last week
    British doctors on brink of 'cure' for paralysis with spinal cord treatment

    British doctors on brink of cure for paralysis

    Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
    Let's talk about loss

    We need to talk about loss

    Secrecy and silence surround stillbirth
    Will there be an all-female mission to Mars?

    Will there be an all-female mission to Mars?

    Women may be better suited to space travel than men are
    Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

    'They poured water on, then electrified me...'

    If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
    James Wharton: The former Guard now fighting discrimination against gay soldiers

    The former Guard now fighting discrimination against gay soldiers

    Life after the Army has brought new battles for the LGBT activist James Wharton
    Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

    Panic over Ebola threatens to infect the midterms

    Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
    Premier League coaches join the RSC to swap the tricks of their trades

    Darling, you were fabulous! But offside...

    Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
    How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

    How to dress with authority

    Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
    New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

    New book on Ian Curtis sheds fresh light on the life of the late singer

    'Joy Division were making art... Ian was for real' says author Jon Savage
    Sean Harris: A rare interview with British acting's secret weapon

    Sean Harris: A rare interview with British acting's secret weapon

    The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
    Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

    Tim Minchin interview

    For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
    Boris Johnson's boozing won't win the puritan vote

    Boris's boozing won't win the puritan vote

    Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
    Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

    Tim Wheeler: Alzheimer's, memories and my dad

    Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album