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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People looking for a contractor mortgage might be interested in a new mortgage decision facility recently launched by the Skipton Building Society.

The new online Decision in Principle facility aims to give prospective borrowers an initial decision in about 10 minutes.

DIP includes a calculator to assess affordability whereby people enter their employment details and information about the home they are thinking of buying. They can record the type of mortgage they require, find out how much they can borrow and confirm they can afford to meet the monthly repayments.

Applicants who pass stage one will then be subject to a full credit check and if nothing untoward shows up, a Decision in Principle will be given. This is valid for a period of three months providing the original information in the application does not change.

Skipton has had a busy year so far. It has increased its mortgage lending and introduced an innovative range of products to help first time buyers get a foot on the housing ladder. It also ventured back into the buy to let mortgage market and launched some of the only home loans to require only 5% deposit.

The Society has recently been awarded the Best National Building Society 2011 accolade from What Mortgage magazine.

Kris Brewster, head of products at Skipton, said the Society understands that buying a property is both complicated and time consuming and so it has worked hard to make the whole process as straightforward as possible.

Not everybody who applies will get a mortgage decision in principle but those who are unsuccessful will find out where they stand quickly and be able to look to other lenders if necessary.

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It’s been a difficult few years for people wanting to get a contractor mortgage and many of them have had to rent a property until they could save enough money for a deposit on the their own home.

But with so many people forced into renting, the private rental sector is struggling to cope with the demand. The Association of Residential Letting Agents recently said 74% of its members say that demand is outstripping supply, the highest percentage since records began. The South East and London in particular have witnessed a sharp increase in demand for private rentals.

Tenants are now staying for an average 19 months in a rented property, again a record high. ARLA claims this is because tenants are wary of looking for a new home when the market is so competitive.

Each ARLA agent signs up an average 34 new tenancies per month, and although this figure has remained steady throughout the year, agents believe this is due to the lack of desirable properties for new renters. The rental sector is now straining to support the slump in the housing market.

The president of ARLA, Tim Hyatt, said the UK rental sector cannot continue to support the housing market indefinitely. There are a finite number of rental properties and we need to see both mortgage availability and housing supply improve. The government is not doing enough to encourage buy to let landlords to invest and so good quality stock is scarce and rents are increasing.

Ian Potter, ARLA’s operations manager, pointed out that David Cameron says the right-to-buy scheme will be re-instated and new funds will be made available to finance new-builds. But will that be enough to kick-start the market?

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New research by valuers Connells suggests that contractor mortgage activity picked up in September, and the number of valuations rose by over a third month-on-month.

Overall, there was an 11% quarter-on-quarter increase in valuations in quarter 3, but when you look at the year-on-year figures, they show an impressive 63% increase this September. Of course, gross mortgage lending was at its lowest point in ten years in September last year.

Despite continuing economic turbulence, the mortgage market has been improving gradually in recent months. There are several cheaper deals on the market and buyers and remortgagers have been keen to take advantage of the low interest rates offered.

Connells expects to see the valuations market continuing to do well for the remainder of 2011, especially in the buy to let sector. Last month saw a 54% month-on-month increase in valuations for potential property investors. Although some of the cheaper buy to let products have been removed recently, landlords are still enthusiastic, not least due to rising rents and static house prices.

First time buyer activity increased last month, as did the number of people moving home. Remortgages accounted for 25% of all the valuations conducted by Connells, and many borrowers seem keen to lock into a fixed rate mortgage to give themselves security in the years to come.

Despite all the seemingly good deals around at the moment, experts are advising borrowers to look deeper than the headline rate and take arrangement fees into consideration before signing up for a mortgage.

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Buy to let is becoming more popular as a lack of first time buyer mortgage finance forces more and more people into renting.

When the recession first hit, mortgage lenders quickly withdrew their buy to let products and in fact some closed up shop completely. As house prices began to fall and credit became harder to access, buy to let was no longer seen as a lucrative investment opportunity.

However, towards the latter half of 2010, the housing market appeared to stabilise and lenders started once again offering buy to let mortgages. Paragon, who had pulled out of buy to let lending, returned and both the Skipton and Yorkshire Building Societies have launched buy to let products this year.

Regional building societies have also got in on the act and this led to a 21% increase in the value of new buy to let mortgages in the second quarter of this year. Between April and June, 32,000 buy to let loans valued at £3.5 billion were taken out, according to the CML. 15,230 of those loans were remortgages and they accounted for £1.6 billion of the total lent.

In other European countries, such as France and Germany, renting levels are near 50%. Although it will be a long time, if ever, that the UK rental market reaches those levels, the MD of Paragon has predicted that by the end of this decade, 20% of homes will be private rentals.

There have been concerns that as buy to let lending increases, so will the fraudulent activity engaged in by some unscrupulous landlords before the recession. The European mortgage directive will address these concerns but it may be years before Brussels implements it.

In the meantime, it looks like the buy to let market will continue to flourish at the expense of prospective contractor mortgage holders who simply cannot afford to raise a deposit.

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Contractor mortgage seekers may be interested to learn that the State Bank of India is expanding its UK retail division and entering into the mortgage market.

The bank is starting to offer buy to let mortgages from £50,000 to £1.5 million to landlords who can put down at least 40% deposit. Next year, it will launch a selection of residential home loan products and add intermediaries such as mortgage brokers and IFAs to its distribution network.

Last year, the SBI expanded its UK consumer banking business to target the mass market rather than just the Indian community.

A spokesperson for the bank explained that the UK mortgage market has changed over the past three to four years. Whereas it would not have been possible for the bank to compete back then, its prudent mortgage lending criteria means that a 60% loan to value buy to let loan is competitive in the current economic climate.

Dramatic changes have occurred in the British mortgage market since the collapse of Northern Rock. The lax regulatory system allowed lenders to grant 100%, and in some cases 125% mortgages to people who were unable to meet their repayments.

Since then, LTV ratios have dropped sharply and in July stood at an average 69%, according to data from the CML. We still have a muted market, with the total value of approved mortgages down 13% year-on-year in July and no doubt consumers will give a warm welcome to any new market entrant.

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