People looking for a contractor mortgage may want to take advantage of the discounted fees being offered by some of the UK’s major mortgage lending institutions.

The Leeds Building Society now offers a three year 75% LTV fixed rate home loan at 3.04% and the booking fee is just £199.

HSBC is holding a New Year sale and has slashed fees on tracker mortgages. The bank is also offering trackers at 2.99% for people who can put down a 20% deposit.

Yorkshire and Clydesdale Bank have also chopped their fees to enable mortgage borrowers to save as much as £999 on a first time buyer home loan.

However, taking advantage of low fees is not always the best option. The Clydesdale/Yorkshire pair offer a two year 75% LTV fixed rate mortgage at 3.49% but despite Yorkshire Building Society charging a fee of £495, its 2.99% deal works out cheaper over the mortgage term.

Moneynet.co.uk’s Andrew Hagger points out that sales do not always offer the best value for money. However, HSBC’s offer is worth looking into because it cuts nearly £1,000 off its already market leading deals.

He went on to express his pleasure that the mortgage market is showing signs of activity so soon into the New Year, but warned consumers that a reduction in fees does not automatically make a mortgage a best buy. Consumers should always work out the full cost of the loan if they want to obtain the best deal.

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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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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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September saw an increase in the number of enquiries estate agents received from prospective homebuyers.

The National Association of Estate Agents says that the average branch received 308 enquiries to register a four-year high. The number of available properties also increased with the average branch having 72 houses for sale – up from 65 in August.

22% of homes were sold to first time buyers, an increase of two percentage points. NAEA attributes this rise to mortgage lending institutions launching more affordable first timer contractor mortgages.

NAEA’s president, Wendy Evans-Scott, said it was good to see an increase in the number of enquiries, but warned that the market was still very cautious and sellers should be realistic about their selling price.

She also pointed out that there has been a slight increase in first time buyer activity, but there are widespread regional variations. Access to lending is still proving to be a real barrier for first time buyers.

Meanwhile, data from the Land Registry shows that house prices have dropped by 2.6% over the last 12 months. The average UK home cost £162,109 in September, down 0.3% from the month previous. House prices in the North East decreased by 3.9% month-on-month, whilst in the North West they rose by 1%.

The MD of Squarefoot Estate Agents, Derek Richardson, said that although August and September were busy months as far as enquiries went, nearly 33% of agreed sales fell through because the buyer could not obtain a mortgage.

The latest data on completions showed 59,919 house sales were completed in the year ending July 2011; a big drop from the 67,475 recorded the previous year.

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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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It used to be that the majority of people wanted to live near to their work, and this generally meant living in or around major cities or towns.

However, an increasing number of people can now reap the benefits of flexible working conditions and that has driven up house prices in rural areas.

The latest Housing Review from the Halifax shows that people looking for a contractor mortgage will find the premium for an inner-city property is much less than it used to be as properties in the country become more sought after. The Halifax report claims that the premium on the average country pile has risen from £20,000 to £27,000 over the last ten years.

Rural properties tend to attract families or retired people who have not suffered from the effects of the mortgage lending crisis to the same extent as those on the lower rungs of the property ladder. That has helped increase demand, which automatically pushes up the price.

Halifax also claims that homebuyers pay an average of £131 a week for the privilege of inner-city living. And house prices in the UK’s larger towns and cities are about 7% higher than the average for their county. That adds about £14,462 to the price for a would-be first time buyer and is the highest premium since Halifax started recording house prices in 1983.

In 2001, the average price of a city home was £104,681; this year, it’s £172,917 – an increase of 65%. Across the whole of the UK, house prices have risen by 56% in the past ten years.

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In 2001, 568,200 first time buyer mortgages were granted. In 2010 this had dropped to 199,200. The average deposit for a first timer in 2001 was £6,320 – this year it’s £26,000. Is it any wonder then that the majority of young people cannot get a foot on the housing ladder?

Some mortgage lending institutions have stepped in to help. Aldermore for example announced a 100% contractor mortgage recently, but in order to take advantage of the deal, first timers need a family member to guarantee the loan. Bath Building Society and National Counties have similar deals, although they both require a small 5% deposit.

These deals could appeal to parents who want to help their offspring buy a property but don’t have large sums of spare cash sitting around in a savings account. To qualify as a guarantor, you need home equity of at least 25% which then acts as collateral against the mortgage and can be called in if the buyer defaults on repayments.

As long as the mortgage repayments are kept up to date, the parent has nothing to pay although having the charge on the property could prove detrimental if parents are moving home or want a remortgage.

The Aldermore deal sounds appealing but with house prices still decreasing, there is a danger that the first time buyer will quickly sink into negative equity. Aldermore’s rate of 6.84% is also significantly higher than the majority of other deals.

National Counties is charging a fixed rate of 4.99% until November 2013 and the Bath Building Society deal is a three year fix at 5.29%.

Parents who are considering helping their child through one of these schemes should first check when they will be released from their obligation. With Aldermore, the maximum term for a guarantor is ten years. With other lenders it is often when the mortgage is less than 75% of the value of the property, and if property prices continue to go down, this could mean a long wait.

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Mortgage lenders are once again hoping to entice homebuyers into purchasing short-term fixed rate products. Northern Rock and Santander are leading the charge having reduced the interest rates on their two and three year fixes.

A first time buyer taking out an 85% LTV 2 year fix with Santander will pay 4.64% plus an arrangement fee of £995. People with a 20% deposit will pay 3.99% for a two year fixed rate contractor mortgage, plus the £995 fee.

Northern Rock has come up with a 70% fixed rate product at 2.99%, whilst its Everyday two-year 75% LTV mortgage is available at 3.19% plus £995 fee. This product is also available without the fee at the higher rate of 3.66%.

But are these deals as good as they look? Short-term fixes do offer some security, but only for a limited time.
Ray Boulger from John Charcoal, says clients may be better off going for a variable rate mortgage rather than a short-term fix. That way they get the benefit of the very low initial rates.

Flexible mortgages are also starting to gain traction. Northern Rock recently introduced a Freedom to Fix product which tracks at 2.08% above the base rate but allows borrowers to change to a fixed rate deal with penalties.

It pays to keep your eyes open when you’re looking for a new home loan as some products have extremely short shelf lives. Abbey recently had a good deal through mortgage brokers for a 75% LTV home loan at 2.89%, plus £995 fee, but it was only available for seven days.

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Mortgage approvals increased for the third consecutive month in March, according to e.surv’s Mortgage Monitor.

This increase was largely fuelled by a rise in demand for cheaper properties. A third of all approvals were for homes costing less than £125,000. A lot of mortgage lending companies are also requiring lower deposits making it easier for first time buyers to get a home loan.

The average LTV mortgage is now 60.8% and although that might still sound steep, it’s better than the 56.2% seen in March last year.

In the last six months, the number of LTV mortgages in the 75% to 85% bracket has increased by twice the rate of the overall contractor mortgage market and for the 85% to 90% bracket, by a third faster. There is therefore a bigger choice of products available for people with deposits of between 10% and 20%.

Recent figures released by the CML showed that the average first time buyer mortgage was £100,000 at the start of this year. The Council’s figures also showed that a home buyer with a £110,000 repayment mortgage would be paying an average £556 per month based on an interest rate of 3.49%.

When you consider that rental costs are rising and LTV rates are improving, it’s not surprising that first time buyers are rushing to get a mortgage while the going is still good. Home ownership is definitely looking good value at the moment, Richard Sexton from e.serv remarked.

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The majority of MPs feel that first time buyers should receive more help, according to a survey conducted on behalf of Genworth Financial.

75% of MPs said that borrowers who have a stable income but cannot afford a deposit of between 10% and 20% should still be able to obtain a contractor mortgage provided they can meet the repayments.

100% of London MPs and 83% of all the MPs surveyed said people in their constituencies needed more help to get a foot on the housing ladder.

84% of the MPs who responded to the survey agreed that the UK’s economic situation would he helped if first time buyers had easier access to the housing market.

Angel Mas from Genworth Financial said the biggest barrier to home ownership is still the high deposit requirement. He believes high LTV lending must return so that individuals with a sound credit profile can obtain a mortgage even though they do not have large savings.

Data from the CML shows that the average sum lent to a first time buyer at the end of last year was £103,500 and the average gross income of buyers was £32,773.

The Connells Group, in conjunction with NatWest Intermediary solutions, launched a 90% LTV mortgage last week. The two year fixed rate product attracts a rate of 5.79% and applicants need to pay a completion fee of £999.

Connells’ group mortgage director, Ross Bowen, pointed out that the long-term health of the housing market depends on what is done now to get first timers buying again. Lenders must do everything in their power to get this group back into home ownership.

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Data from the ONS shows that the average salary for a worker in their twenties is just under £21,000. If a first-time buyer saves 10% of their monthly salary for a deposit on a house, i.e. £136, it could take them up to 17 years to achieve their objective, according to the Halifax.

The stark reality is that first-time buyers face a nightmare trying to get a foot on the property ladder. The cost of an average first-time buyer property is £138,682 – 6.6 times the average salary of a full-time employee in their twenties. Ten years ago, the same home would have cost £68,644. No wonder that over 80% of people under the age of 30 turn to their parents for help buying a property.

Mortgage lending institutions want people living in London to have an average £56,259 deposit before they will grant them a mortgage. That works out as nearly 25% of the property’s value.

Rising house prices over the last ten years have prevented many people from entering the housing market. In 2000, there were more than half a million first-time buyers – by 2010 the number had fallen to 200,000.

The typical first time buyer in 2010 was 29 and paid a deposit of 21% of the house purchase price. If we take those who get parental help out of the equation, the average age increases to 36. Are things set to improve in 2011?

Most economists expect house prices to continue falling by between 5% and 10%. Whilst this may be good news for house hunters, it does not bode so well for people who currently have a contractor mortgage and find themselves with negative equity.

The housing market has to stabilise eventually but it seems there is a way to go before that happens.

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The high street banks are still reducing the interest rates on their mortgage products in a bid to attract new customers.

The latest to offer reduced rates is Santander. The Spanish banking giant has cut 0.16% off the rate on its 75% LTV two year fixed rate mortgage. The new rate is now 3.89% and attracts a £99 fee. Santander has also cut its 70% LTV mortgage by 0.1% to 3.15% over a 2 year fixed term.

The bank has also reduced the interest rate on its 70%LTV three year fix by 0.08%. The rate now stands at 3.79% although the fee for this deal is £995.

The director of mortgages at Santander, Phil Cliff, said that the bank wanted to make sure it was offering competitive contractor mortgages to its customers.

First-time buyers are not being left out either. The bank has just launched a mortgage exclusively for people who want to buy their first home, which demonstrates Santander’s desire to support the housing market, continued Cliff.

Meanwhile, experts have varying predictions on the short-term future of the housing market. Last month housing prices dropped by 0.3% and now stand at £163,400 which is nearly the same as they were in November 2009 when the average house price was £162,800.

The question on everybody’s mind is what’s going to happen next? Martin Gahbauer from the Nationwide Building Society says that there is little evidence that the price decline will accelerate in the coming months, whereas an expert from Capital Economics believes that prices could drop by as much as 10%. The Office of Budget Responsibility expects to see a fall of 2.7% next year and Howard Archer from IHS Global Insight expects the decline to be more like 6%. There’s is at least one thing that they all agree on; prices are going to continue going down.

In the longer-term, the OBR predicts that house prices will rise by a modest 1.9% in 2012-13, 4% the following year and 4.3% each year in the following two years.

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