Yorkshire Building Society had some welcome news for first time buyers earlier this week when it cut the interest rate on its range of low deposit contractor mortgages.

First time buyers with a 10% deposit, and people moving home with only 10% equity in their current property, can now get a three-year fixed rate mortgage from the Yorkshire at 4.69%. Furthermore, the arrangement fee is only £495, making this a highly competitive 90% LTV deal.

Although this mortgage will no doubt appeal to first time buyers, it could also be of interest to those with little equity who want to upsize or remortgage.

Moneynet.co.uk’s Andrew Hagger said this is an attractive rate for people with only 10% to put down as a deposit. However, far more competitive rates are available for those with larger deposits. For example, the Building Society also offers an 85% LTV three-year fix at just 3.89%.

Another building society with a promising three-year fix is the Leek United. It’s 90% LTV three-year fix charges just 3.99%, but there is an arrangement fee of £995.

People who want to fix their monthly repayments for five years could find HSBC’s five-year deal to their liking. This is a 90% LTV mortgage at 4.89% and there is no arrangement fee to pay.

Concerns have been raised that people who opt for two or three year fixes will find their deal expires just as the Bank of England raises interest rates. Of course we have no idea when, and by how much, interest rates will start to increase, but people looking for long-term financial security may want to consider a longer-term fix.

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In the last 12 months, the number of available contractor mortgages has increased from 2,527 to 3,180. We’ve even seen some 95% LTV loans creeping into the market, but there are still not enough of them to satisfy first time buyer demand.

New mortgage deals are now only around for about 27 days before they become fully subscribed, according to the website Moneyfacts. The historic average was 30 days. This would suggest that demand is higher than supply.

Moneyfacts discovered that there are currently 49 mortgages requiring just 5% deposit. This compares favourably with the 24 products that were available this time last year. Furthermore, there are 280 home loans with people with a 10% deposit, up from 199 last January.

People moving home with a deposit of at least 40% have 393 mortgage products to choose from.

First time buyers have been having a hard time saving for a deposit over recent years and they will need to find more money this spring when the stamp duty holiday comes to an end.

Despite an increase in the number of products, there are concerns that mortgage lending criteria will be tightened this year and a lot of borrowers could struggle to meet the conditions. Current global economic concerns are weighing heavy on providers and they prefer the assurance that comes with a proven track record. This is reflected in the incentives, such as cash back and free legal fees, offered to those looking to remortgage.

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Bellway homes, the UK house builder, has reminded first time buyers that the stamp duty holiday on new homes is about to end.

Homes costing less than £125,000 do not attract stamp duty but people buying a property costing £125,000 or above have to the tax at a rate of 1% of the purchase price.

In March 2010, the government increased the threshold for first time buyers to £250,000 to make it easier for them to enter the housing market. However, on March 24th that relaxation comes to an end.

Steve Rose, the sales director at Bellway, explained that thousands of first time buyers have taken advantage of the stamp duty holiday, but time is running out.

Bellway was also pleased to learn that contractor mortgages for people with only a 5% deposit were to return. The government announced that a 95% mortgage would be available from leading lenders as past of its National Housing Strategy.

Maria Seed said that first time buyers only spend about one eighth of their monthly income on mortgage interest repayments. However, the average rent is now £720 a month and this means first time buyers struggle to save enough for a deposit.

Data from the CML showed that just 36% buyers bought their first home without financial assistance from friends and family in Q3 last year. Average deposits stand at more than £26,000, double the requirement in 2007, when 63% of first timers were able to buy without turning to others for assistance.

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First time buyers might like to know that the Leeds Building society is now offering 95% LTV contractor mortgages.

It’s cheaper to buy than rent in 47 out of the 50 largest towns and cities in the UK, but sizeable deposit requirements have put home ownership out of the reach of many first timers.

Last month the Leeds launched a 95% LTV five year fixed rate home loan with a competitive interest rate of 5.99%. Prospective buyers also need to pay an arrangement fee of £999 to take advantage of this deal. It is possible to roll the fee into the mortgage, but it is better to avoid doing that because it will cost you more in the long run.

The Leeds Building Society has also come up with a mortgage that does not require a deposit. It’s a home share deal and can be used to buy registered Housing Association properties. In the first instance, the purchaser must buy at least 25% of the property and pay rent on the remaining part. This mortgage comes at a fixed rate of 6.49% until the end of March 2014 and attracts a modest fee of £199.

With rents at record levels, this could be a cheaper alternative for people who cannot raise a deposit of 5% or 10%. However, it is important for potential buyers to understand the way shared equity schemes operate and ensure they will still be able to meet the repayments once the initial fixed term period expires.

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Contractor mortgages may be even harder to find in 2012 as banks and building societies find themselves having to comply with stricter mortgage lending regulations.

Self-employed people and first time buyers will find it harder to obtain the finance to buy their first home and the over 50s could struggle to release equity already tied up in their property.

Under the FSA’s new regulations, borrowers must prove their income and satisfy the lender that they are able to repay the mortgage debt. Access to mortgages that will run past retirement date will also be restricted. This will mean the over 50s could have problems arranging an equity release scheme.

It will also be harder for first time buyers to get a high LTV home loan or an interest-only mortgage. They may want to consider a shared-equity arrangement, like the First Buy scheme backed by the government, or one from a property developer such as Barratt or Persimmon.

Saving regularly has to be a number one priority for prospective buyers. Nationwide offers a 95% LTV mortgage to buyers who have saved regularly for a minimum of six months.

Mortgage lenders are highly unlikely to lend money to anyone who is not on the electoral roll and they scrutinise credit reports so prospective borrowers should check theirs to make sure it does not contain incorrect information.

First time buyers have had a tough couple of years and unfortunately it looks like things are not set to improve this year.

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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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Two year fixed rate contractor mortgages have proved very popular in recent years, but are they necessarily the best option?

Although a two-year fix gives homebuyers the security of knowing what their monthly repayments will be over the short-term, what happens when the term comes to an end?

Interest rates have held steady at 0.5% for well over two years now and experts predict that they will remain low, at least well into next year. But, the same experts predict that rates could start increasing sharply in about two years time. Therefore, people who take out a fixed rate or tracker mortgage now could be in for a nasty shock when their two-year term comes to an end.

The Leek United Building Society is currently offering a 75% LTV discounted variable rate of 2.49% for two years, and the Yorkshire Building Society has a 75% LTV two year fix at 2.69%. Both of these deals attract fees of £495.

These mortgages sound good, but when you look behind the headline rate, the Leek United deal reverts to the Building Society’s standard variable rate of 5.19% at term. If interest rates rise, the SVR will also increase and so will your monthly repayments.

Mortgage lending institutions are starting to come out with some reasonable deals for longer-term mortgages. First Direct has a lifetime 75% tracker mortgage at a variable 2.89% rate. This is a fully flexible home loan and could be switched to a fixed rate mortgage without penalty if interest rates start to increase dramatically.

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The British public are becoming increasingly pessimistic about the chances of home ownership, according to a new study by Grainger.

The residential landlord has discovered that 54% of Brits believe more people will be renting than owning their home in 15 years time. Currently, around 70% own and 30% rent.

Grainger’s executive property director, Nick Jopling, explained that contractor mortgage lending has been tightened since the recession, house prices keep fluctuating and supply is not keeping up with demand. More and more people are now faced with little choice but to rent.

92% of the young survey respondents, those aged between 18 and 34, said renting was the only way they could move set up away from their parents. However, this generation also do not believe that home ownership is not as important as it was back in the mid 80s.

The firm wants the government to reform the planning system and speed up the process of granting permission to use land for new developments.

Mr Jopling went on to explain that the housing market will continue to suffer and more has to be done to close the supply and demand gap.

The homeless charity, Shelter, has already warned that the housing shortage has caused private rents to skyrocket. Furthermore, around 50% of properties in the private rental sector are in a substandard condition.

Campbell Robb, the chief executive of Shelter, said the government must address their housing strategy and consider how it will provide families with children a stable rental environment to live in.

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David Cameron announced his strategy to help first time buyers get their first foot on the housing ladder yesterday.

The real estate and mortgage lending sectors have welcomed the proposal to let first timers obtain 95% contractor mortgages through a government backed underwriting scheme. The PM also released £400 million to provide grants to house builders who develop land that is thought of as uneconomic.

Ian Baker, the MD of the Linden Homes Group, said this is a major step forward in making affordable finance available to UK home buyers. The residential building sector has been constrained by the lack of affordable mortgage finance for some years, he continued. These new mortgages will be available countrywide from the major lending institutions.

He went on to say that the 95% mortgages must be available for apartments as well as new houses to give everybody the opportunity to buy the property they want.

Mr Cameron also said the government’s build now, pay later programme will provide an extra 200,000 homes within the next four years. The DCLG will release land owned by the government for private development and local councils will also be urged to release unused land to property developers.

Property analyst, Samantha Baden, said providing more first time buyer homes and making sure they can access the necessary mortgage finance is essential if the housing market is going to start moving freely again.

The average family is now spending 46.2% of their income on rent, so any measures to help people buy their first home are a major step forward.

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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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The majority of young people dream of owning their own home one day, but last week their hopes were all but shattered.

The director general of the CML, Paul Smee, said a lot of them would have to rent for much longer than they expected.

Charlie Bean, the Bank of England’s deputy governor, echoed that sentiment when he predicted that lenders will stop granting high LTV contractor mortgages.

He explained that the days of generous mortgages were over. First time buyers will need to save larger deposits and the UK will see a decrease in the proportion of owner-occupiers.

Many people would find it cheaper to buy than rent, if only they could raise the deposit. The average cost of renting is now £718 a month, and in London it could cost more than £1,000. Over the last five years, one million families who would like to buy a property have had to rent instead. In 2005, there were 2.4 million private rental households; by 2009/10, that figure had reached 3.4 million.

Data from the CML shows that there were just 200,000 first time buyers last year, compared to 500,000 in 2000.

Matt Griffiths from Priced-Out, the campaign group for first timers, said mortgage lending institutions have led us into a housing market nightmare. Unless you can rely on the bank of mum and dad, or receive a very high salary, renting has become the norm.

Grant Shapps, the housing minister, says he wants to encourage banks to offer more first time buyer low-deposit mortgages. He also acknowledges that the UK needs more new homes.

Currently, around 67% of UK households are homeowners. That compares favourably with European countries such as Germany and France with 45% and 55% respectively. However, in Spain 85% of households are homeowners, in Norway the figure is 77%, and in Ireland 75%.

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