Buy to let residential property investors are emerging as winners as the mortgage famine forces more and more people into renting rather than buying.

Savills estate agent has reported that private landlords now own nearly 20% of the UK’s housing stock.

Contractor mortgage lenders began tightening their lending criteria when the economic crisis began and although this has prevented a lot of first time buyers getting their first foot on the housing ladder, buy to let landlords have been able to take advantage of new opportunities. Investors are no longer lured by the promise of rising house prices; instead increasing rental income attracts them.

The CML says buy to let landlords received £3.8 billion in mortgage funding in the third quarter of 2011- a rise of 16%.

However, despite the tightened mortgage lending criteria, home loan approvals increased to 52,854 in November; up from 52,786 the month before. Of course, this figure is still well below the monthly average of 88,000 seen in 1993, but it is reassuring to see that the Eurozone crisis is not having as bad an impact as some might have expected.

The number of approved remortgages in November dropped from 34,004 to 31,154, the lowest amount since June 2011.

Samuel Tombs from Capital Economics pointed out that mortgage lending is going to be weighed down by the threat of a double-dip recession over the coming months. Mortgage approvals may start to fall again as banks increase the cost of lending in response to the deteriorating conditions in the wholesale funding markets.

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Although first time buyer homes are now at their most affordable since 2003, the number of people obtaining a contractor mortgage to buy one has dropped to an all time low, according to the Halifax.

A lot of properties in the North and the Midlands could be bought with a mortgage of between £80,000 and £95,000 – well within the reach of a young first time buyer, the UK’s biggest mortgage lending institution said.

The First Time Buyer Review for November discovered that houses bought by first timers were affordable in 44% of the UK’s local authorities. When the property market peaked in 2007, that figure was just 5%.

Despite this improved affordability, only 187,000 first time buyers came to the market in 2011, well down on the 568,200 in 2001. Whilst properties in the north may be within their price range, they are effectively locked out of the housing market in the south because of steep deposits and sky-high prices.

South Ayrshire is the most affordable area for a first time buyer, with average property prices standing at 2.65 times average gross annual earnings. The most affordable town in southern England is Peterborough, but at just 75 miles north of London, average house prices are four times average earnings.

At the other end of the scale, a property in the North London area of Brent would cost nine times the average local income. It’s not much easier to buy a home in Oxford, where typical prices are 7.75 times the average local income.

The buy to let market, on the other hand, enjoyed a boom year in 2011. Residential landlords took out nearly 90,000 mortgages on the first three quarters of last year compared to 68,000 in the first nine months of 2010.

There is a glimmer of hope for first time buyers as deposit requirements decreased to £27,032 last year. However, that is still more than the average gross annual salary for the majority of young adults and with landlords increasing rents, 64% of first time buyers had to rely on help from their relatives to raise a deposit in 2011.

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Prospective residential landlords might be interested to learn that a new lender entered the buy to let market last week.

Abbey for Intermediaries has launched a range of contractor mortgages for people with one or two investment properties. The deals are available for both remortgages and purchases but can only be obtained through brokers.

Among the offerings is a 60% LTV fixed rate mortgage at 4.2% and a 75% LTV two year fix at 5.19%. Both deals come with a fee of £1,495. Homebuyers will be entitled to a free mortgage valuation and once the deal is completed they will receive £250 cashback.

Demand for rental properties this year has meant the buy to let market has seen strong growth.

Abbey for Intermediaries’ director of retail assets, Phil cliff, said he expects to see strong interest in the new products from potential landlords and those looking to add a second investment property to their portfolio.

Borrowers aged between 21 and 70 are eligible to apply providing they can put down at least 25% as a deposit. The expected rental cover must be at least 125% and the property must cost at least £100,000.

Furthermore, these deals are only available to existing mortgage holders with no more than three secured loans at the time their application is submitted. Abbey will only grant no more than two buy to let mortgages to any individual.

Nigel Stockton, Countrywide’s financial services director, welcomed the new market entrant but warned Abbey to make sure its lending criteria was competitive if it wanted to have a significant impact on a market dominated by just two lenders.

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The Halifax has reported that UK house prices dropped last month as weaker than expected economic growth impacted the housing market recovery.

In October, prices increased by 1.2% but November’s 0.9% drop meant that year-on-year prices were down by 1.5%, with the average property now sitting at £161,731.

UK inflation far exceeds wage growth and rising unemployment is curbing the demand for property. As expected the Bank of England’s MPC retained the base rate at 0.5% earlier this month.

Martin Ellis, a Halifax housing economist, said house prices have managed to stay remarkably stable this year despite the turbulent economic climate and the substantial pressures that have been heaped on household finances.

The number of approved contractor mortgages increased in October, Bank of England figures show, but the Nationwide Building Society has warned that prices may decrease further next year.

Although Halifax claims prices dropped last month, another survey paints a very different picture. LSL Property Services Plc and Acadametrics Ltd claim that house prices remained unchanged in November and the average home in England and Wales cost £220,043. That’s well over £50,000 more than Halifax’s figure.

House prices rose in five out of the 10 tracked regions. London recorded the largest increase at 0.6%, whilst in the South East prices remained unchanged.

The report estimated that 60,600 transactions took place last month, compared to 49,383 six months ago. According to Acadametrics, this increase was fuelled by buy to let investors and only time will tell whether the Eurozone debt crisis will have a negative impact on the upward trend.

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Buy to let investors hoping to get an 85% LTV mortgage are likely to be disappointed after it was revealed that lending institutions are going to set 75% LTV as the norm.

Many landlords expect to put down just 15% as a deposit, but the tough economic climate has caused lenders to demand more.

The CML recently said there was a 16% increase in the number of buy to let mortgage products during the third quarter of this year. At the same time, the value of advanced buy to let mortgages increased by 19%.

Meanwhile, contractor mortgage lending north of the border lags way behind the UK average, according to the Council of Mortgage Lenders.

Mortgage lending in Scotland increased by 8% in Q3, but that was 7.5% less than the comparable period in 2010. Furthermore, the national quarter-on-quarter average increase was 16%.

Scottish borrowers took out 12,400 home loans in the third quarter of 2011. Mortgage lending criteria was relaxed slightly over the period and the average first time buyers loan-to-value ratio increased marginally from 79% to 80% leading to a 10% increase in the value of mortgages granted to first timers. However, this was still below the UK average increase of 16% by value.

Kennedy Foster, from CML Scotland, explained that the Scottish mortgage market is stable. Continuing economic uncertainty and low consumer confidence will probably lead to a continuing constrained housing market throughout the whole of the UK in the coming months.

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There have been some good contractor mortgage deals on offer recently, but that situation could be about to change.

Over the last few months, Barclays relaunched 90% LTV home loans and Nationwide made more similar products available. Mortgage lending companies were forced to lower their interest rates if they wanted to remain competitive and this was obviously good news for home buyers.

Residential property investors have also been able to find good deals and in the quarter to September 34,500 buy to let mortgages were taken out. At the moment, the Nottingham Building society offers a 75% LTV 4.19% fixed rate buy to let mortgage. The rate on this deal is fixed until February 2014.

However, deals like this might soon become a thing of the past. The crisis in the Eurozone, and fears of a double dip are causing banks and building societies to rethink their lending strategies.

Lenders now have to pay more to borrow money and those increases will eventually be passed on to borrowers. In fact some lenders have already increased their rates and it’s possible that we’ve reached the low point in the interest rate cycle.

Some experts are advising borrowers who want the added security of a fixed rate product to act quickly before rates start increasing in earnest.

Yorkshire Building Society offers a 75% LTV three year fix at 2.89%, while the Skipton has a first time buyer 95% LTV fix at 5.99%. That rate is fixed until January 2014. For people wanting longer-term security, HSBC offers a 90% LTV mortgage fixed at 4.89% until January 2017.

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Metro Bank launched with much fanfare last year and yet in the fifteen months since it appeared on the High Street, it has approved only 100 mortgages!

Consumers hoped the launch would signal a revolution in the banking world but it seems that Metro Bank has struggled to take a share of the contractor mortgage from its more established rivals.

Metro Bank is currently offering an 80% LTV two-year fixed rate home loan at 3.95%, but this rate is quite high when you consider that the best buys have an interest rate of less than 3%. The Yorkshire Building Society, for example, offers a two-year 75% LTV fix at just 2.69%.

Craig Donaldson, the chief executive of the bank, said the company has been concentrating on building up cash deposits and now has more than 40,000 current and savings account holders.

Currently, the bank is only dealing in prime residential mortgages and therefore buy to let landlords would be unable to secure a home loan from Metro Bank.

Furthermore, there are only 9 branches and these are all within the M25. However, Metro Bank does intent to start an online facility early next year and has plans to expand into a commuter town such as Cambridge, Guildford or Oxford. Eventually it hopes to have a presence in other large UK cities.

Metro Bank expects to return a profit within the next three years and plans to float on the stock market in 2014.

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Estate Agents Savills have predicted that we will see little upward movement in house prices in the next five years.

The firm expects prices to decrease by 2% next year and then grow slightly over the next three years. By 2016, it predicts that growth should really start up again, increasing to 4.5%.

In real terms, this represents an 11% decrease and by 2016, the housing market will be at the same level it was in 2002 when you take inflation into consideration.

Savills also predicts that the continuing lack of contractor mortgage finance will mean that 20% of households will be renting privately by 2020. Despite an increase in buy to let transactions, demand will outstrip supply and rents are likely to increase by at least 20% over the next five years.

Property owners in London will fare better than those in the rest of the UK. House prices in the Capital are expected to rise by 19.1% in the coming five years, whilst in the North East of England they are expected to decrease by 3.1%.

The Royal Institute of Chartered Surveyors is now asking its members to come up with solutions to the housing market problem. It believes that its members can draw on their vast wealth of experience to suggest ways the government can create a market that works for consumers.

It is in everybody’s best interests to have a sustainable housing market that not only increases home ownership but also improves the rental sector, builds new homes and addresses the shortage of affordable housing.

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First time buyers in Bedfordshire are to get a helping hand from Barratt Northampton and the Mansfield Building Society.

The leading house builder had teamed up with the Mansfield to offer an exclusive contractor mortgage to people who want to buy a home under the new FirstBuy scheme.

George Osborne announced FirstBuy as part of his March budget plans. The idea is to allow eligible buyers to purchase their first property for three-quarters of the asking price and with only 5% deposit. Barratt and government run Homes and Communities Agency will fund the other 20%.

Mansfield’s FirstBuy home loan is a discount offset mortgage linked to a non-interest bearing savings account. Interest on the mortgage will be charged at an initial rate of 2.99%.

Barratt’s allocation of funds under FirstBuy is limited and purchasers will be offered the mortgage on a first come, first served allocation.

Meanwhile, 48,200 residential mortgages were taken out in September, 2% down on the previous month, according to the Council of Mortgage Lenders. 34,200 of these were for remortgages.

In the third quarter of 2011, a total of 144,200 house purchase loans were taken out. This represented a 16% increase on Q2 but a 6% decrease on the comparable period last year.

Almost 12% of all mortgages went to buy to let landlords during Q3 demonstrating that property investors’ appetite continues to increase as more people are forced into renting. Furthermore, fewer landlords are now in arrears with their mortgage repayments.

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The Coventry Building Society has become the latest in the long line of mortgage lending institutions to add new products to its range of buy to let and residential mortgages.

Several of the new contractor mortgages come with no early repayment charges or arrangement fees.

Residential customers can now apply for a 65% LTV two year fixed rate mortgage at 3.05%. This is one of the deals that does not have an arrangement fee. For people with less money to put down as a deposit, the Coventry is now offering an 80% LTV two-year fix at 3.55%. Again borrowers would not have to pay an arrangement fee for this deal.

The lender has also launched its Flexx BBR Tracker mortgages for the buy to let market. The rate tracks the Bank of England base rate plus 2.99%. With the base rate still at its historic low of 0.5%, landlords taking advantage of this deal now would pay a modest 3.49%. Interestingly, Coventry has capped the rate until the end of 2013 at a top level of 4.49% to protect borrowers from dramatic increases in the base rate.

The deal is available to property investors with a deposit of at least 35% and there are no penalties for early repayment.

Colin Franklin, Coventry’s sales and marketing director, explained that many homeowners are currently on a standard variable rate mortgage with an interest rate of between 3% and 4%. This new range gives them the option to remortgage and pay a lower fixed rate.

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MyMortgageDirect has advised first time buyers that the outlook for the property market remains mixed.

A lot of contractor mortgage seekers will no doubt be wondering when house prices are going to rise. The mortgage website explained this will depend on which area of the country you live in. Some parts of the UK will experience rising prices, whilst in others house prices will stay as they are, or in some places they may even fall further.

Nationwide recently revealed a 0.4% increase in house prices last month, adding that the average home is now 0.8% more expensive than it was this time last year. Furthermore its research indicated a slight drop in prices in ‘Urban Prosperity’ areas. However, areas populated by ‘Wealthy Achievers’ have seen a 3% increase in house prices since 2008.

MyMortgageDirect director, Catherine Hearnden, said the outlook remains mixed and price trends will be largely dependant on the area you live and the type of property.

She went on to say that people often gauge the market by what is happening in London and that can be a useful guide. However, property is high affordable at the moment and mortgage lending institutions are offering good mortgage rates so first time buyers shouldn’t be put off taking that first step onto the housing ladder.

Meanwhile, buy to let landlords may want to ensure their tax affairs are in order after HMRC announced it had set up a new taskforce to investigate the sector.

Landlords in North Wales and the North West of England will come under the spotlight first, and its highly probable that the taskforce will eventually spread out to cover the whole of the UK.

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As more and more people are forced to rent rather than buy, Barclays Bank has decided to extend the range of buy-to-let products it offers to property investors.

The Woolwich, the mortgage arm of the high street bank, is now offering a new range of loans for buy to let landlords who can put down a minimum 25% deposit.

Among the new offerings is a five-year fixed rate mortgage at 4.99% and a two-year fix at 4.39%. Landlords who prefer a longer-term deal can get a lifetime tracker mortgage at 3.49% above the Bank of England base rate. All mortgages attract a £1,999 application fee.

Barclays’ head of mortgages, Andy Gray, explained that there has been increased demand recently from buy to let investors as first time buyers struggle to get a contractor mortgage. Furthermore, existing investors are looking to remortgage and the bank’s competitive five-year fix will give them stability over the longer-term.

The new range is available to landlords wanting to borrow between £50,000 and £1 million.

Last month, website Easyroommate.co.uk conducted a survey and discovered that rents for flat shares are increasing at a rate of nearly 5% a year. The average rent for a room now stands at £365 per month.

The problems for first time buyers could be set to get worse after official figures showed that the number of new builds is now at its lowest level since records began.

Last year, just under 120,000 new homes were built – only 50% of the level needed to keep up with demand. The UK needs another 1 million homes and that figure is rising by around 10% per year as life expectancy increases and more people opt to live alone.

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