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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Freelancers hoping to get their first contractor mortgage might be interested to learn of a suggestion made by the director general of the CBI. John Cridland recently suggests that first time buyers should be allowed to tap into their pension fund to help raise the necessary funds to buy their first property.

One Warwickshire estate agent said he applauded any move that would revitalise the flagging housing market, but it was important to take into account the long-term consequences of such an action. One obvious problem is that if you take money out of your pension fund now, you’re using money that should be going towards funding your retirement?

Meanwhile, equity release advances increased to £206.2 million in the third quarter of 2011, according to SHIP.

Safe Home Income Plans, the trade body for equity release, said the number of customers grew from 3,710 in the second quarter to 4,148 in Q3 and now stands at the highest level since the start of last year.

The average equity release product was £49,703 and although this was virtually the same as the previous quarter, it was an increase of 6% on the comparable period last year.

SHIP’s director general, Andrea Rozario, said the equity release market had an excellent third quarter. There is an enormous amount of wealth locked up in properties and for a lot of people this wealth is their greatest asset. The population in the UK is ageing and many people have not made adequate provisions for their retirement. SHIP expects to see a significant increase in demand for equity release products in the next few years, she added.

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Data recently released by the Financial Services Authority shows an increase in the number of complaints about mortgage products in the first half of 2011.

67,309 complaints were received about home finance in the first six months of this year, compared to 64,220 in the second half of last year. Complaints covered regulated products such as contractor mortgages and unregulated products like buy to let loans and equity release.

The Bank of Scotland had the dubious honour of coming top of the complaints table with 12,080. 49% of the complaints against them were upheld in favour of the borrower.

Santander, the Spanish owned bank, came in at number two with 8,961 complaints about mortgages, 42% of which were upheld. It was closely followed by Barclays at 8,894. NatWest received 4,268 new complaints and 4,170 customers complained about HSBC mortgages.

Although the Royal Bank of Scotland only had 2,103 new mortgage complaints made against them, 81% of those were upheld.

Meanwhile, Stewart Milne, the Scottish house building tycoon, has again called on Government ministers to encourage banks to increase mortgage lending.

He said the current mortgage shortage could see the housing market in the doldrums for a long time if action is not taken quickly to end the drought. First time buyers have been hit particularly hard, he continued. Six months ago, 20% of potential buyers had to pull out of an agreed deal because they could not secure a mortgage and the situation still has not improved.

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The Bank of England’s MPC held interest rates at their historic low for yet another month last Thursday.

The base rate has now sat at 0.5% since March 2009, and contractor mortgage borrowers have benefited to the sum of £51 billion as a result. Savers, on the other hand, have lost out on a total of £43 billion.

It is now thought that the policymakers will leave the base rate at 0.5%, at least until next year, and some experts predict it will not increase until 2013. OPEC has now downgraded UK growth projections to 0.3% for the final quarter of the year and inflation is still above the government’s 2% target, so the hold on interest rates is welcome news for homeowners.

Also last week, the Halifax reported that house prices dropped by 1.2% in August, compared to the previous month. Lenders seem satisfied that the housing market is stable at present but they fail to take inflation into account.

Pricewaterhouse Coopers say that if you take the rising cost of living into consideration, average real house prices in the UK are unlikely to get back to their peak levels of 2007 for nearly ten years.

PwC also warned that it would be a slow road to recovery for the housing market and this will only take off when we see supply shortages and mortgage availability returning to more normal levels. Until then, people such as pensioners who have already paid off their mortgage and then turn to equity release to fund their retirement are getting a raw deal.

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First Direct has claimed that an offset mortgage could save borrowers thousands of pounds.

According to the Internet banking division of HSBC, approximately 460,000 people in the UK have an offset mortgage and over the last two years they have made a total return of £1.9 billion. This compares very favourably with the £534 million cumulative interest they would have received if they had invested their funds in best buy savings accounts.

First Direct’s senior mortgage product manager, Richard Tolchard, said an offset contractor mortgage is a great option for borrowers who want to get a higher rate on their savings. Many people are seeing their savings eroded by tax and inflation but with an offset mortgage, no tax is paid when savings are used to reduce mortgage interest.

Meanwhile, some elderly people are having to sell their homes and down-size because the interest rate on their savings is not providing them with enough income. Equity release is an option for people in this situation, but not all retirees want to go down that route.

The base interest rate has remained at 0.5% for the last 28 months, courtesy of the Bank of England’s Monetary Policy Committee. People who have continued to save have seen the value of their money eroded by around 10% when you take inflation into account.

There’s a growing consensus in the UK now that the Bank of England must take action and raise interest rates sooner rather than later. But when will the MPC oblige and are mortgage holders prepared?

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Is your home working for or against you? Recent research from LSL Property Services shows that house prices have risen by 11% in the last five years, but inflation has increased by 17% and salaries by just 15%.

The figures are skewed rather because prices in the Capital have continued to increase at a reasonable rate. People living in the East Midlands have seen house prices drop, whilst those in the North West and East Anglia have remained virtually unchanged.

As an example, somebody who took out a contractor mortgage on a £250,000 property in the North West five years ago may think they have not lost out if the house remains at that value today. But, in real terms the property has lost over £42,500 due to inflation.

Some experts expect that house prices will not outrun inflation for a further five years, leaving homeowners with less opportunity to fund their retirement through equity release schemes. This could have a profound impact on older people, according to Ros Altmann from Saga.

The LSL survey did show that salaries are increasing at a faster rate than house prices, which should mean that first-time buyers could find properties more affordable. However, with the cost of living increasing, they are struggling to save for a deposit.

LSL’s David Newnes said that people who could obtain a mortgage are finding that property is more affordable but deposit requirements are still a major barrier for first timers.

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Health-impaired home owners aged 60 or over, may be able to benefit from a new equity release scheme from Partnership.

Partnership has just launched a new product for cash-poor older home owners who have a property worth at least £70,000, but find themselves with lifestyle or health problems.

The lifetime mortgage will offer enhanced benefits to people suffering from long-term illnesses like cancer, diabetes or high blood pressure, and better terms will be available to smokers.

Consumers will be able to obtain a minimum £25,000 cash release and no fees will be payable for application, valuation or completion. There is a no negative equity guarantee and the 7.65% annual equivalent interest rate is fixed.

Partnership’s MD for equity release, Ged Hosty, said this enhanced lifetime mortgage product provides exceptional terms for qualifying homeowners. The underwriting process has been simplified and eligibility can be confirmed online, within minutes, simply by answering a short set of medical questions.

He went on to say that Partnership had researched the market and found that about 40% of equity release mortgage applicants might be able to qualify for better terms due to medical reasons and no other UK company offers the outstanding benefits of the new Partnership product.

Before taking advantage of this, or any other equity release scheme, home owners are advised to talk to a mortgage specialist or independent financial adviser.

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Last week, two of the UK’s home builders reported that the domestic housing market is continuing to improve but warned that consumers are still hampered by the lack of mortgage availability.

Barratt Developments PLC reported that its sales rates are now at normal levels and that average prices have increased after the difficult trading conditions in the last half of 2010.

Bovis said it has experienced a 20% increase in visitor numbers, a sentiment also expressed by the larger firms of Persimmon PLC and Taylor Wimpey PLC.

Meanwhile, first time buyers are still the largest group of people to seek mortgage advice from unbiased.co.uk’s mortgage adviser search. 38% of users requiring advice last month were first-timers, followed by those looking for advice on a remortgage at 33%.

17% of searchers wanted advice on buy to let products and 7% wanted to know more about contractor mortgages. Equity release was searched for by 6% but somewhat surprisingly only 3% were interested in learning more about flexible mortgages.

However, it turns out that mortgage advice was not the main reason why consumers used the online portal. Retirement planning advice was top of the list with 41% of consumers, a significant increase from the 35% recorded in April last year. 28% of consumers also looked for investment and savings advice. These results would suggest that the British public is eventually waking up to the need to consider long-term financial planning.

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Equity release is gaining in popularity again after three years in the doldrums. In the first quarter of this year, 5,812 equity release schemes were taken out, a 4% increase on the corresponding period in 2010.

Equity release means drawing down cash from the value of your property and people have different reasons for making use of it. Funding home improvements, helping grandchildren to go to university or paying off a contractor mortgage are just some of the ways the spare cash could prove useful.

However, a lot of people don’t understand what they’re getting themselves into and in many cases this is the fault of advisers. Not long ago, the FSA conducted a mystery shopper exercise and discovered that two thirds of advisers did not properly explain equity release schemes thereby exposing customers to unnecessary risks.

The FSA now regulates equity release schemes and confidence has been restored with the guaranteed no-negative-equity clause. Plans are now geared more towards the consumer and it is possible to draw down funds as when required rather than in a lump sum.

Less than 5% of all equity release schemes are home reversion plans. These involve selling a portion, or all, of a property in exchange for a lump sum or a regular income.

The more popular choice is a lifetime mortgage. With this option, you take out a mortgage against your property that provides a lump sum payment. The amount borrowed, plus accrued interest is then repaid when the home is sold. The size of a lifetime mortgage is age dependant. A 65 year old would be able to borrow a maximum of 33% of the value of their property, whilst a 60 year old could raise up to 28%.

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Last year mortgage holders in the UK paid back a record £24bn to mortgage lending companies, according to the latest data from the Bank of England.

Borrowers have been taking advantage of historically low interest rates to reduce their mortgage liability. In quarter 4 last year, lenders received £7bn in mortgage repayments and deposits.

Between July 1998 and March 2008, homeowners withdrew an additional £328bn in equity release against the increasing value of their properties. This allowed them to spend on cars and holidays. However, the reverse is now happening as people concentrate on reducing their debts. Families are now spending 2.7% of their net income on reducing their mortgage liability.

Since 2008, £57.4bn has been injected into housing equity, according to the financial information service Moneyfacts.

Howard Archer from IHS Global Insight pointed out that the low rate of return on savings accounts made it more attractive for people to reduce their contractor mortgage rather than build up a nest egg.

However, this willingness to reduce mortgages could have an adverse affect on consumer growth. People in the UK have already been hit by increases in fuel costs and VAT and we recently learnt that disposable income was at its lowest in more than 30 years. If people are ploughing more money into reducing their mortgage they will be left with even less to spend on consumer goods and therefore growth will decline. This, in turn, will have a knock-on effect on manufacturers and retailers.

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People with contractor mortgages may be asking themselves whether house prices are rising at last. The answer to that million dollar question seems to depend on who you ask!

Take October’s data for example. If you believe Hometrack Ltd, you’ll think prices dropped by 0.9%. However, if you listen to mortgage lending giant, the Halifax, you’ll be under the impression that prices rose by 1.8%.

In fact, over the last 22 months, there have only been 5 instances when all the indexes agreed as far as the direction of the market was concerned. The last time it happened was way back in January when they all indicated that house prices had risen.

Confused? You’re not alone… There are at least seven different indexes that track house prices and if they all produce differing results, how can anyone know what it truly happening? Not a helpful scenario when confidence in the housing market is already low.

These different indexes can also publish vastly different average house prices. The November index from Rightmove showed that the average asking price was nearly £230,000, a lot higher than Hometrack’s estimate of around £155,000.

Meanwhile, equity release schemes may start to make a come-back as retirement incomes drop due to the low interest rates we are currently seeing in the UK.

Some experts have suggested that people over the age of 55 could start boosting their income by taking cash from the value of their property from an equity release scheme. Low interest rates have led to falling annuity rates and, along with high inflation, pensioners and people approaching retirement could find themselves with a cash shortfall.

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The British Bankers’ Association recently confirmed that the number of mortgages granted for house purchases in the UK fell again in September. The level of mortgage lending is now at its lowest for ten years.

In September, gross mortgage lending was £8bn, a 10.8% drop on the same period last year. And three or 4 years ago, an average of 55,000 mortgages were approved each month. Now the figure is just over 31,100.

There were 677 fewer mortgages granted compared to August’s figure of 31,781, although this drop was not quite as bad as analysts had expected. The value of mortgages advanced fell by £0.1bn to £4.6bn, with an average mortgage value of £142,900. Remortgage approvals also declined last month, dropping by 161 to 23,820 whilst equity release and other purpose mortgages dropped by 371.

Demand for new mortgages is still low despite there being more properties for sale and falling prices. Economist Howard Archer from Global Insight said the housing market has very little going for it at the present.

At the end of last week, the Bank of England published its ‘Trends in Lending’ report that warned that house prices are likely to remain unchanged or drop slightly next year as the public sector cuts bite.

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