Recent data from the Bank of England shows that homeowners repaid £9.15 billion more than was taken out in mortgages in the quarter ending June. That’s the most that has been repaid in a quarter since the BoE starting collating the figures.

Before the credit crisis in 2008, borrowers frequently capitalised on rising house prices and applied for a remortgage. The funds were then spent on buying a new car, having a holiday or other large purchases.

Whilst this switch to repaying contractor mortgage debt is good news for homeowners, it is not helping the economy. £92.9 billion has been paid off mortgages since June 2008; at least some of which could have been spent on the high street.

However, experts say it is sensible to repay mortgage debt. Howard Archer, HIS Global Insight’s chief economist, said the record repayment in Q2 shows that a lot people want to improve their personal balance sheet because of concerns over the turbulent economic climate and worries over job security.

Furthermore, banks and building societies are paying extremely low interest rates on savings accounts so many consumers have decided that using spare funds to reduce their mortgage is an attractive option. Added to that, mortgage interest rates are also very low at the moment, so a lot of borrowers are finding they have more disposable income.

Even best buy ISAs only pay around 3.5% interest at the moment, and as that is well below the rate of inflation, making mortgage overpayments does seem to make perfect sense.

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Experian recently reported that instances of contractor mortgage fraud increased dramatically in the third quarter of 2011. 49 out of every 10,000 mortgage applications were discovered to be fraudulent, a rise of 77% on the comparable period last year and an increase of 53% on the second quarter of this year.

30 out of every 10,000 bank current accounts applications were also found to be fraudulent.

Experian’s Nick Mothershaw, said that over 90% of fraudulent mortgage applications are from individuals lying about their financial circumstances in order to buy a property that they would not genuinely be able to afford.

However, cases of fraud may start to fall now that mortgages are at their most affordable for almost eight years.

Data from the Council of Mortgage Lenders shows that first time buyers now spend 12.3% of their take home pay on mortgage interest payments. People moving home are also benefiting from low interest rates and spend an average 9.2% of their income on their mortgage interest.

Mortgage lending activity is still being curtailed by high deposit requirements and continued economic uncertainty in the Eurozone. Only 44,500 residential mortgages were granted in October, down 3,700 from the preceding month. Of those, 28,900 were for people looking to remortgage.

The average deposit requirement has remained at 20% for the last few months and there can be no doubt that this has a major bearing on the number of first time buyers who can afford to get a foot on the housing ladder. The government has recently introduced schemes to make home ownership more affordable for this group and hopefully we’ll see the housing market make more of a recovery early in 2012.

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Economists have now warned that the shortage of available homes will cause house prices to rise by 15% in the next five years. By 2016, the average three-bedroomed property will cost £202,068 – up from £176,184.

On the plus side, it should be easier to get a contractor mortgage as the Bank of England approves quantitative easing to inject more cash into the UK economy.

The CEBR predicts that house prices will increase by 1.6% in 2012, before reaching a yearly increase of 4.3% by 2016. Chief executive, Douglas McWilliams, said he expects to see 740,000 new mortgages a year by 2016, but even though that is an increase of around 180,000 on this year’s figure, it will still be nowhere near the level seen in 2006.

Home owners will no doubt welcome the news that prices are going to start increasing, but it’s little comfort to those who are paying enormous rents because they can’t get on the property ladder.

Recent research by Skipton Financial Services discovered that the average family needs an annual income of £24,600 to break even. Mortgage interest repayments are still the number one spend, despite the UK having had rock bottom interest rates for well over two years.

First time buyers are no doubt hoping that the measures laid out in the Chancellor’s recent Autumn Statement will help them obtain a reasonably priced mortgage. However, if more first time buyers enter the market, and the supply of housing stock remains limited, prices will increase further.

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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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Last week HSBC launched a new contractor mortgage for first time buyers. The High Street bank says this is the only first timer home loan charging less than 4%. Furthermore, HSBC says it plans to make an additional £350 million available to buyers with small deposits before the turn of the year.

This new HSBC offering is available to borrowers who can put down between 10% and 15% as a deposit, and charges a respectable 3.84% over a two-year term. This is slightly lower than the bank’s standard variable rate, which is currently 3.94%. As an added bonus, this mortgage does not attract any set up or application fees.

Once the two-year term ends, people will automatically move to the bank’s SVR. With interest rates as they are at the moment, this is no big deal, but in two years time, rates are likely to have increased and borrowers could find themselves paying more than they bargained for.

Peter Dockar, the head of mortgages at HSBC, explained that the bank recognises the need to help first time buyers and so it offers great rates, no fee options and an in-branch mortgage advice service to help buyers get the home loan that best fits their requirements.

Also last week, HSBC warned that the reforms proposed by the Independent Commission on Banking could cost it up to £1.3 billion.

Some experts think the bank might move its HQ away from the UK if the proposed reforms go ahead. HSBC transferred its HQ to the UK from Hong Kong 20 years ago, after it tool over the Midland Bank.

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As the average age of first time buyers rises, an increasing number of us face becoming OAP mortgagees.

Mortgage lending institutions demand large deposits and potential homebuyers find themselves living in rental accommodation for longer than they anticipated in order to save enough to secure a contractor mortgage.

We now have a situation whereby more than 25% of private tenants looking to purchase a property are in their 40s. If they do get a mortgage, they will either have to pay it off faster than the normal 25-year period, or continue making repayments after they have retired.

More than 50% of people living in rented property would love to buy but can’t afford to get their first foot on the ladder.

Although lenders are slashing the interest rates on their mortgage products as the base rate remains at 0.5%, rents are rising and tenants will find it harder to save enough for a deposit. Record high rents of £718 across England and Wales were reported in September. Add rising inflation and energy prices to the equation and it’s not surprising that household finances are strained.

Another problem for people buying a property later in life is that some lenders have a retirement-age criteria, which means they may have to get a mortgage term of say 20 years rather than 25, and therefore make larger monthly repayments to compensate.

Aviva, the insurance specialist, discovered last year that 10% of homeowners over 75 are still making mortgage repayments and their average outstanding debt was £72,500. At a time when people should be allowed to relax and enjoy retirement, that sounds like a huge debt burden.

The government must take action to help first time buyers get on the housing ladder well before they reach the age of 40.

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People looking for a contractor mortgage will be delighted to learn that HSBC is planning to lend more to first time buyers.

The high street bank announced last week that it will make an additional £350 million available to people with smaller deposits and HSBC intends to reserve £250 million of this money specifically for first time buyers.

HSBC has launched some new 90% LTV fee-free products including a lifetime tracker mortgage at 4.09% above the Bank of England base rate, a two-year fixed rate deal at 4.49% and a five year fix at 4.89%.

People with a 15% deposit qualify for cheaper rates. The lifetime tracker comes in at 3.49% above the base rate whilst the interest rates on the two and five year fixes are 4.29% and 4.69% respectively.

Somebody taking out a £120,000 90% LTV five year fixed rate HSBC mortgage would pay £694 each month. Although the two year fix would be marginally cheaper at £666, the extra £28 a month could be worth it for people looking for added security.

Moneynet.co.uk’s Andrew Hagger said the UK needs more mortgage lending institutions to come up with first time buyer deals in order to kick-start the market. As he pointed out, rates are improving but they are still high when compared to the rates on offer for people who can put down larger deposits.

This could be the ideal time for first time buyers to get on the property ladder. House prices have dropped by 2.3% over the past 12 months and the cost of the average residential property in England and Wales now stands at £218,650.

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New research by valuers Connells suggests that contractor mortgage activity picked up in September, and the number of valuations rose by over a third month-on-month.

Overall, there was an 11% quarter-on-quarter increase in valuations in quarter 3, but when you look at the year-on-year figures, they show an impressive 63% increase this September. Of course, gross mortgage lending was at its lowest point in ten years in September last year.

Despite continuing economic turbulence, the mortgage market has been improving gradually in recent months. There are several cheaper deals on the market and buyers and remortgagers have been keen to take advantage of the low interest rates offered.

Connells expects to see the valuations market continuing to do well for the remainder of 2011, especially in the buy to let sector. Last month saw a 54% month-on-month increase in valuations for potential property investors. Although some of the cheaper buy to let products have been removed recently, landlords are still enthusiastic, not least due to rising rents and static house prices.

First time buyer activity increased last month, as did the number of people moving home. Remortgages accounted for 25% of all the valuations conducted by Connells, and many borrowers seem keen to lock into a fixed rate mortgage to give themselves security in the years to come.

Despite all the seemingly good deals around at the moment, experts are advising borrowers to look deeper than the headline rate and take arrangement fees into consideration before signing up for a mortgage.

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The Halifax last week claimed that the UK housing market lacks any genuine direction because demand is being choked by the squeeze on finances.

The contractor mortgage lender’s latest survey discovered that house prices fell by 0.5% month on month in September, and that followed a 1.1% decrease in August. There have been slight signs of improvement with more mortgages approved but Halifax does not expect to see any dramatic changes in the final quarter of 2011.

House prices were 0.1% higher in quarter three than the previous three months and this was the first quarterly increase since Q1 2010.

Martin Ellis, housing economist at Halifax, explained that the monthly picture has been mixed this year. We’ve seen four increases, four decreases and one month where there was no change. This is consistent with a housing market where house prices lack any sort of genuine direction.

Halifax’s report also showed that new borrowers’ mortgage repayments now take up 26% of disposable income, a 14 year low. In 2007, they stood at 48%.

Higher employment levels and low interest rates have so far been propping up the market but greater economic uncertainty, high inflation, increased taxation and weak earnings growth are constraining demand for housing.

The Council of Mortgage Lenders also agreed that house prices appear to have no clear trajectory at present. A situation it says is not surprising considering the amount of uncertainties on both sides of the supply and demand curve.

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Although contractor mortgage interest rates are going down, the same cannot be said for application fees.

Mortgage application fees have increased by over 30% in the last 12 months. Last September someone applying for a two-year fixed rate home loan would pay a total of £973 in booking and application fees. That has now increased to £1,253. The average borrower now pays £939 for the application fee, compared to last September’s charge of £699.

Especially for people with smaller mortgages, these high initial fees can offset any savings made from low interest rates.

Leeds Building Society recently launched a two year fix at 1.99%, but in order to obtain the mortgage borrowers have to pay fees of £1,999 and an exit fee of £199. Anyone applying for less than £164,000 through this deal would actually be better off getting a higher interest rate loan with lower fees. The Yorkshire Building Society charges a higher interest rate of 2.69%, but with fees of just £95, somebody borrowing £150,000 would pay £600 less with them than through the Leeds over the two year term.

Clare Francis from Moneysupermarket explained that people often don’t see further than the headline rate but there a multitude of additional fees that can boost the cost of the mortgage up dramatically.

Exit fees are now higher than they used to and upfront non-refundable fees are also more prevalent. However, David Hollingworth from London & Country mortgage brokers says that mortgage lenders are now becoming more competitive and borrowers have more choice.

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Although sub-prime contractor mortgage lending dried up after the recession, there are still hundreds of thousands of people with sub-prime debts.

These borrowers are saddled with high interest rates, poor service and the documents relating to the loan are either impossible to understand or downright misleading. To make matters worse, in the majority of cases the original mortgage lending company has gone bust and the loan is now administered by a little-known company.

Earlier this month, the FSA fined Swift 1st a total of £630,000 and told it to refund customers with £2 million. Swift 1st became the fifth sub-prime lender to be fined for unfairly charging borrowers who fell into arrears with their mortgage repayments.

There have been numerous cases where sub-prime lenders have levied repeated large unexplained charges to people in arrears and sometimes the charges have led to homeowners losing their properties.

In one such case, a couple were billed £6,409 in fines and charges. Of that sum, there were eight fines of £50 for ‘arrears management’ and sixteen fines of £115 for repossession or litigation management and more than £1,800 of the total was for legal costs. The couple concerned had no chance of clearing their arrears because more and more charges kept being applied to their account and their home was eventually repossessed. To add insult to injury, once the property was sold, the couple were left with a shortfall of £63,375.

The FSA is trying to put a stop to this behaviour but if at all possible, anybody with a sub-prime home loan should think about moving their mortgage to a mainstream, reputable lender as soon as possible.

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What is the most important factor to take into consideration when you think about moving home? According to a housing expert, the answer is almost always location.

Parents could require a home close to a recognised school and regular travellers might need to be near a train station or have easy access to a motorway.

A survey by Santander Mortgages shows that more than 33% of prospective homebuyers with young children want to move to an area where their child will receive a good education. So determined are they to be in the right catchment area that some will pay a premium of up to £77,000 to purchase a property in an elite state school area.

The UK average asking house price is £221,110 but that average increases to £298,378 for people wanting a house close to one of the top 50 British state schools.

If you want your child to attend Henrietta Barnett School in Hampstead, you’ll pay an average £655,429 for a property. Living near the 2nd best state school in the UK – St Olave’s and St Saviour’s Grammar, which is in Orpington, Kent, will set you back more than double the national average. If, on the other hand, you are happy for your children to attend the best state school – Bishop Wordsworth’s Grammar School in Salisbury, the average house price is a mere £286,112.

Meanwhile, when did you last sit down and review your contractor mortgage? According to recent data, 46% of mortgage holders, including buy to let landlords, have not reviewed their home loan recently.

The chief executive of Unbiased.co.uk, Karen Barrett, suggests that with interest rates still sitting at a historical low, people should take the opportunity to examine their mortgage and see if an attractive alternative is available.

She urged every holder of a home loan to devote some time to scrutinising their current borrowing. Borrowers may also want to talk to a professional financial adviser to make sure they are getting the best deal.

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