A new lender, Precise Mortgages, entered the contractor mortgage market yesterday. The group will lend funds to investment landlords providing they have at least 25% to put down as a deposit.

The company, which is backed by US venture capitalists, will offer contractor mortgages through intermediaries such as L&G Mortgage Club and Mortgage Next.

The chief executive of Precise Mortgages, Ian Lonergan, said that a significant mortgage shortfall has taken place over the last couple of years as some lenders have pulled out of the mortgage market or focused on lending only to borrowers with a very low credit risk.

He believes there is now a strong demand for new lenders to enter the UK market place.

The group has 3 different deals on offer; one of which is a two-year tracker loan with a starting rate of 5.79%.

Another group to enter the market place yesterday was Aldermore. They will provide discounted and fixed rate residential loans as well as buy-to-let mortgages.

The buy-to-let market started to improve earlier this year with new players such as the Bank of China entering the sector.

The Mortgage Works launched 7 new products for the buy-to-let market earlier this month. There are now a total of 301 products available for investment landlords; up from 215 at the start of the year. That is still a far cry from the 3,662 mortgages that were available in August 2007.

Rates on buy-to-let loans are also decreasing. 2 year fixed rate products now have an average rate of 5.65% as opposed to the 5.96% charged last September.

New products and reduced rates will indeed be good news for the beleaguered housing market. The CML has reported that gross lending now stands at its lowest for 10 years. £10.2 billion of new deals were agreed in April, down 12% on the previous month.

Michael Coogan, director-general of the CML wants the government to step in quickly to address the prospective funding gap that will occur when the support measures introduced during the economic crisis come to an end.

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Image: Future Tenant Sign by Nick Smarto

The Residential Landlords Association believes that Alistair Darling missed a golden opportunity when he presented his budget last week.

They believe that if landlords were treated as businesses, it would lead to prosperity in the housing market since they would be able to claim CGT rollover relief for property reinvestment. At the moment landlords aren’t inclined to sell their properties through fear of potential capital gains tax liabilities.

But if the law was changed, the RLA says that more properties would change hands, resulting in additional contractor mortgages being made available. This would also mean that landlords would be more likely to renovate those properties. The government would further benefit from increased tax receipts in the form of stamp duty and land tax.

In 2009, the European Union voted for a 5% VAT rate on renovation and repair work done to private housing. The RLA would like to see the UK government bring in a similar ruling. This again would encourage landlords to improve their properties and bring a welcome boost to the construction industry which is struggling to cope after the recession. They also feel that this move would play an important role in reducing carbon emissions from UK houses.

40% of all houses in the Private Rental Sector were built before 1919 according to the recently published English Housing Survey. Landlords are now facing mounting pressure to improve these homes and make them more energy efficient.

Meanwhile new planning permission laws come into force this month which the RLA say are ‘totally impractical’. The new legislation means that buy-to-let landlords will need to obtain planning permission if three or more unrelated residents live in their properties. PropertyEarth.net, a website that specialises in providing consumers with easy access to chain free properties, says that 57% of all searches on their site are for three-bedroom homes.

The government say that the new legislation is designed to stop bad landlords running substandard accommodation.

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Image: Tray, brush, roller, paint by whereareyousimon

Due to the limited availability contractor mortgages, potential house-buyers are now looking for longer-term rental tenancies as their dreams of owning a home are put on hold. Contractors who have invested in property with the intention of renting it out could be amongst those to benefit from a more reliable income.

Property experts are now calling for additional incentives to encourage landlords to offer longer-term leases, a practice already common in the rest of Europe. In Germany for example nearly 66% of private homes are rented.

According to research by Hometrack, a Scottish property data group, first-time buyers in Scotland had to find an extra £15,016 for a deposit in 2009 compared to the figure in 2007.

In Scotland there is a short assured tenancy system whereby tenants sign an initial lease for 6 months which can then be extended as long as both parties are happy. The traditional 6 month period used to be enough for most people who were looking to buy a property but the state of the housing market has meant that more and more people are now extending their lease for an additional 6, or even 12, months.

In fact the situation is so bad that some people who had hoped to obtain a contractor mortgage within the original 6 month period have now been renting for 3 or 4 years.

The CML has already expressed fears that the lack of new homes and the strict criteria laid down by mortgage lenders will continue to prohibit private ownership levels rising in the near future.

A major problem facing tenants is the lack of security of tenure. With a short assured tenancy, they could find themselves having to move on a regular basis.

John Blackwood, the director of the Scottish Association of Landlords is calling for tax breaks for landlords who offer long-term tenancies whilst David Alexander, the owner of a residential letting agency, wants to see both private and institutional investors given tax incentives to invest over the longer term.

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Image: to rent me… by Greencolander