Julian Knight: These hiked up mortgage fees – what a fix
Sunday 25 October 2009
Buried in the Bank of England's most recent report into lending trends – yes, I do need to get out much more – is both good and bad news. Let's have the supposed good news first; the Bank reckons the mortgage market is about to get more competitive and interest rates will fall. However, the Bank states that its discussions with lenders have highlighted "increased mortgage fees in the coming months, suggesting that, in aggregate, any reduction in spreads could be associated with higher fees".
In English, this means that lenders may reduce their headline interest rates but it's likely they will hit you with higher fees when you take out the mortgage in the first place. Therefore the bumper margin which has been enjoyed by lenders since the onset of the credit crunch will continue unabated – it's just that some consumers, who aren't looking behind the numbers, will think they are getting a better deal.
The continued move to higher fees has a harmful side-effect – apart from the obvious pain in the wallet – and that is that it stops people shopping around, and the lenders know it. They no longer feel they can benefit from consumers "churning" between providers. Instead, they want them to stay for the long haul and slapping on exorbitant arrangement fees is a good way of doing this.
As we previewed last Sunday, the Financial Services Authority focused its mortgage review on stopping dodgy lending practices – fair enough, but in what could prove to be its dying months as a regulator (if the Tories get in) perhaps it ought to think about trying to ensure a fairer deal for consumers over fees.
How is it that five years ago an average arrangement fee was around £300, and now it's closer to a grand? What has changed? And why is it that one mortgage takes £500 to arrange while another is £1,500? From what I know, there is no difference in actual paperwork. The simple truth is that most arrangement fees are unjustifiably high, and the whole practice is tinged with the feeling of a market fix.
Back to the Seventies stone age
The TUC wants private investors to pay more tax when buying and selling shares. They theorise that charging higher stamp duty will lead to people holding their shares for longer, ensuring that UK industry isn't buffeted by the whims of speculators.
I'm afraid the TUC's idea is straight from the stone age (otherwise referred to as the 1970s). UK investors already face among the highest stamp duty costs of the world's big stockmarkets, and how will paying an extra half a per cent in stamp duty deter speculation? It won't, all it will do is hit the pocket of the small investor, damage pension funds (which the TUC should be looking to protect) and ultimately make the UK stockmarket uncompetitive.
Not so tasty tax break
A few years back, with substantial tax breaks on offer – up to 40 per cent of the sum invested – there was a massive rush into Venture Capital Trusts (VCTs). In 2005-06 around three quarters of a billion was raised by new VCTs from private investors. A substantial alternative asset class seemed to have really taken off. But now new research from investment analysts Hotbed shows just how badly the VCT sector is faring – just £150m raised in the past year – with many new issues not attracting sufficient funds to get off the ground.
As for those who ploughed their money into VCTs, many probably wish they hadn't as they are finding that it's not easy to ship out of an investment which is based on investing in small unquoted companies. Meanwhile, the investment performance of VCTs lags badly behind that great big bogeyman of the politicians and unions, private equity.
The sad truth is that many went for VCTs because of the tax break on offer, a cardinal sin of investing. Yet again it seems it's proved to be another case of last year's investment must-have morphing into this year's dog's dinner.
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