Contractor mortgage hunters who are concerned that interest rates may rise dramatically in the next couple of years may want to consider taking out a ten-year fixed rate product.

The Norwich and Peterborough Building Society announced last week that is was launching a 75% LTV mortgage fixed at 3.99% for ten years. The fee for this product is a modest £295 and includes free legal fees and valuation.

Home buyers in the UK have been reluctant to commit to a long-term mortgage because of hefty early repayment charges, but David Black from Defaqto, the financial statisticians, said that they are worth considering for people who know they are going to remain in a property for a long time.

There are not a lot of long-term fixes on the market at the moment and the Norwich and Peterborough offering has the best rate, as well as low arrangement fees.

Recent research from Moneyfacts found that fees on home loans have been rising dramatically in recent months. This time last year, purchasers paid an average arrangement fee of £899, now the figure is £1,498.

Moneyfacts.co.uk spokesperson, Sylvia Waycot, said that people tend to ignore the cost of arrangement fees in the overall excitement of purchasing a home. But this could prove a costly, particularly if the cost of the fee is added on to mortgage. Consumers should always take incentives and charges into account, as well as the headline rate, when shopping around for the best deal.

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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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There hasn’t been much good news to shout about in the housing market recently, but a glimmer of hope has crept in after the CML announced that mortgage lending increased in November.

The number of people taking out a fixed rate contractor mortgage in November was the highest seen for more than two years. 65% of the 47,000 mortgages taken out were fixed rate deals as borrowers took advantage of the good deals available. The Post Office and Nationwide are amongst the providers to have slashed the rates on their fixes as the Bank of England base rate remains at 0.5%.

Despite November’s increase, Howard Archer from HIS Global Insight explained that the UK’s housing market is still low and will probably come under further pressure this year. He expects house prices to fall by as much as 5% as the market is weighed down by rising unemployment, weakened economic activity and low consumer confidence.

First time buyers took out 17,300 mortgages worth a total of £2.1 billion in November. In November 2010, the typical first timer spent 13% of their income on mortgage interest payments. By November 2011, this had decreased to 12.2%.

The CML remarked that although we have seen a significant decrease in the number of first time buyers since the start of the recession, the proportion of mortgages granted to them has stayed reasonably steady. Last November, 37% of all mortgages went to first timers. There was also a 2% year on year increase in the number of mortgages granted to people moving home.

Paul Smee, the director general of the CML, expects to see first time buyer activity increase in the short term as purchasers rush to complete before the stamp duty holiday ends in March.

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Although the Bank of England has held the base rate at a historic low of 0.5% for almost three years, contractor mortgage rates have been increasing recently as lenders fear a double dip recession.

A lack of trust in the Eurozone banking sector led to lenders increasing the cost of short-term fixes and tracker mortgages last month.

However, there are still some good deals available for buyers who shop around. First time buyers may be interested in the 95% LTV two-year fixed rate mortgage from the Newcastle Building Society. There is a £995 fee to pay, but you can get a fee-free version, with free valuation, at 6.25%.

People looking to remortgage might want to look into HSBC’s lifetime tracker mortgage. It’s pegged at 1.99% above the base rate and available to people with at least 35% deposit. There are no arrangement fees or early repayment charges and the mortgage comes with free legal work and valuation.

Home buyers looking for a little more security could be interested in a two-year fixed rate mortgage from the Hanley Economic Building Society. You need at least 15% deposit and an arrangement fee of £495 to get an interest rate of 3.34%. The Hanley also has an 85% LTV five-year fix at 4.40%. There is no arrangement fee to pay and remortgagers get a free valuation and free legal work while new purchasers receive £250 cashback.

First Direct has a two-year tracker at 1.49% above base for people with 35% deposit. It does attract a £1,499 fee but there is no charge for early repayments.

However, before you jump in and grab one of these products, do the maths and take into consideration all the fees and freebies to make sure you really are getting the best deal.

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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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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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Mortgage Brain’s latest product analysis shows there are now 87% more available mortgage products than there were this time last year.

As of the 5th of December, its contractor mortgage sourcing system listed 14,052 home loans. At the same point in 2010, only 7,519 mortgages were available.

Throughout the first ten months of the year the number of new products coming to market increased steadily to give the best yearly performance for more than three years.

During the past year, the number of variable rate mortgages has increased by 120% and now stands at 2,329. Tracker mortgages increased by 108% and fixed rate home loans went up by 72%. There are now 8,294 fixed rate mortgages on the market, accounting for almost 60% of the total products.

Mortgage Brain’s CEO, Mark Lofthouse, said this was a great way to end the year. 6,500 new products have become available this year and good increases have been seen in all product types. Mortgage intermediaries now have a much greater variety to choose from and plenty more opportunities to find the best product for the ever-changing needs of their customers.

Meanwhile, the Co-op has reduced the rates on its fixed rate mortgages by up to 0.60%. An 85% LTV 2 year fix now comes with an interest rate of 3.79%, whilst a 90% LTV 3 year fix now comes in at 4.89%. Both of these deals attract a £999 fee.

The biggest decrease is on a five year fixed rate mortgage for buyers with a 10% deposit. This deal can now be snapped up at 5.39% with no fee.

The Co-op’s head of mortgages, James Hillon, said mortgage lending companies are increasing mortgage rates because of the Eurozone crisis, but the Co-op intends to buck the trend to encourage activity in the housing market.

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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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Nobody can have failed to notice that trouble has been brewing in the Eurozone recently. But what exactly does that mean for UK homeowners?

The Bank of England MPC set the base rate at 0.5% on the fifth of March 2009, and it has remained there ever since. Although savers have undoubtedly suffered, people taking out a contractor mortgage have had plenty of cheap deals to choose from.

However, mortgage lending rates have been edging up recently and they could increase at a faster rate if the eurozone crisis implodes.

In the last couple of weeks, ING and Nationwide have increased the rates on selected home loans. The Chelsea Building Society has also increased rates on some of its products. A two-year tracker mortgage with the Chelsea now has a rate of 1.89% above base – up from 1.69% above the BoE base rate.

Wholesale rates, the rates at which the banks borrow money, have increased because of the troubles in the Eurozone. And these are the rates that determine the cost of fixed rate and tracker mortgages.

Mortgage lenders are having to pay more to borrow money and its not surprising that they pass the increase on to their customers. So far the increases have been minimal, and plenty of cheap mortgages are still available.

But what will happen in the New Year? John Charcoal’s Ray Boulger is concerned that the Eurozone crisis will cause lenders to reduce lending. It will cost them more to borrow the funds, competition will decrease and rates on new mortgages will increase. Furthermore, if less funding is available, deposit requirements will increase once more and first time buyers will once again find it impossible to get a mortgage.

Add to that the government’s decision to remove the stamp duty holiday and 2012 could be end up being another year of misery for the housing market.

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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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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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