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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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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Figures released last week by the Land Registry showed a decrease of 0.3% in house prices across England and Wales in August.

The average home now costs £162,347 – 2.6% less than this time last year. House prices have being fluctuating up and down this year as the housing market remains volatile.

As always there have been regional variations. The average price of a home in the North East has dropped by 7.8% in the last twelve months. The only area to register an overall increase is London, where properties now cost 2.1% more than they did a year ago. The average home in the Capital will now set you back £348,686.

The East of England registered an average price increase of 0.8% in August whilst in the East Midlands house prices were up by 0.7%.

Also last week, the Bank of England published the results of its Q3 credit conditions survey. It revealed an increased demand for contractor mortgages and an increase in prime lending for the first time in nearly two years. However, the report said that lending conditions will probably deteriorate further over the coming six months.

Lenders are having problems raising funds and consumers will feel the backwash. Demand for mortgages has increased but supply is still thin on the ground. In both the corporate and household surveys, lenders highlighted adverse conditions for wholesale funding as a key reason why future lending may be constrained. Although this has not yet reduced the availability of credit, it could do in the future.

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House builders are seeing signs that the UK housing market may be more resilient than a lot of people feared. This is due in part to people moving home out of necessity even though it has been difficult to get a contractor mortgage.

Leading builders Bovis Homes, Persimmon and Taylor Wimpey recently said that sales in the spring held up. David Ritchie, the chief executive of Bovis Homes, expects the market to remain relatively stable into next year and pointed out that he had seen a 16% rise in the number of reservations for private homes in the first half of this year.

Chris Millings, who works as an equities analyst at Numis Securities, said there appears to be a general thawing and he’s encouraged to see that despite negative comments in the press about the consumer squeeze, the housing market has proved much more resilient than expected.

The house building sector has been operating at an all time low, but demand is starting to drive activity as mortgages are becoming easier to obtain. Other analysts now say the long term prospects for the housing market and house prices are looking positive.

However, first time buyers are still facing tough times with high deposit requirements, rising rents and student debts.

House builders and mortgage lenders are trying to tackle the problem and discussions are ongoing as to how they can bridge the deposit gap.

One solution could be to offer a type of mortgage indemnity, an idea which Simon Brown of Northland Capital Partners thinks would be a powerful tool, but one that is unlikely to come to fruition at least in the next few months.

The HBF has said the only reasonable answer would be to have third parties, such as insurers, underwriting mortgages to first timers so that builders are not taking on additional risk.

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Data released by the Council of Mortgage lenders recently showed that, although there was an increase in the number of home loans granted in April, the figure was still 1,000 down on the comparable period last year.

In March 2011, 37,900 residential home loans were advanced with a total value of £5.5 billion. In April, £5.9 billion worth of mortgages were granted to 40,900 buyers. Real estate professionals say there needs to be a strong increase in the number of approved mortgages to prevent the housing market stagnating.

Remortgage activity dropped in April and it is believed that this trend will continue as the threat of a quick interest rate rise diminishes.

First time buyer activity increased by 8%, to 15,800 mortgages valued at £1.9 billion. However, analysts say the figure needs to be much higher if we want more people to get a foot on the housing ladder. The average first time buyer contractor mortgage was 80% LTV, which is a higher percentage than in the last 30 months but still well down on the average 90% mortgages that were common before the recession took hold in 2008.

People moving home accounted for £4 billion of mortgage funding in April. 25,100 people were able to secure a mortgage to help them move, an 8% increase on March.

The director general of the CML, Michael Coogan, said the increase in mortgage lending was a positive sign but he expects the market to remain subdued over the summer.

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Low house prices are encouraging people to invest in buy to let properties rather than putting their money into low interest savings accounts.

Data from the Council of Mortgage Lenders shows a 22% increase in the value of mortgages taken out by private landlords in 2010. Over the same period, Bank of England figures show that the total amount of mortgages taken out dropped by 5.1%.

Nick Leeming from Zoopla, the property website, said that although transactions are up, it is cash and investors and private landlords who are propping up the market rather than owner-occupiers.

In the ten years up to 2007, the number of buy to let transactions increased 19 fold and investment clubs and TV programmes extolled the virtues of being a landlord. From 2007 to 2009, buy to let contractor mortgages decreased by 73% compared to the overall drop of 52%.

Buy to let loans are still considered to be a risk by mortgage lending companies. Last year 5,900 buy to let properties were repossessed.

Countrywide Plc’s chief executive officer, Grenville Turner, said that a lot of people now consider buy to let as an important aspect of their pension planning. And as an added bonus for the investor, management costs and mortgage interest payments are classed as tax-deductable business expenses.

Average residential rents in the London region rose by 16% last year and the average gross rental income in the first quarter of this year averaged 5% of the purchase price. With the UK financial institutions offering low rates of return on investments, it’s hardly surprising that people are looking to buy to let as a way of maximising their income.

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An increasing number of homeowners are struggling to move up the property ladder, according to a report from Lloyds TSB.

People thinking about moving home have been hit by falling house prices, a shortage of first-time buyers and a lack of contractor mortgage finance. A lot of second steppers, as they are known, are now trapped in small starter properties.

Typically, a first-time buyer remains in their first property for four years. Many one those who are now looking to move up would have bought their first home when house prices were at their peak. An estimated 9% of second steppers now have negative equity and another 18% do not have enough equity in their home to enable them to move.

The average cost of a first-time buyer property has fallen by around £28,000 in the last 4 years; from £148,001 to £119,960. 95% mortgages were also widely available 4 years ago so many house buyers did not pay a large deposit that would have offered them a cushion against falling prices.

Lloyds has estimated that a first-time buyer home is around £48,200 cheaper than a second stepper’s. And even if a second-stepper could raise the extra money, who is going to buy their existing property? 84% say they would expect a first-time buyer to purchase it, but they are struggling more than anybody to get a mortgage.

There was a 14% drop in the number of properties that changed hands for under £120,000 last year and a decrease of 13% in those between £120,000 and £200,000.

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It’s inevitable that interest rates will rise, but when? Is now the time to start shopping around for a new contractor mortgage deal?

Unfortunately we don’t have a crystal ball to see into the future but one thing we do know is that you need to take more than just interest rates into consideration when shopping for a new mortgage.

Lloyds has recently launched a new three-year fixed rate mortgage. It even comes with a loyalty discount that means customers who already bank with Lloyds, and have a deposit of at least 25%, can benefit from an interest rate of 3.74%. Customers of other banks wanting to take up this deal will be charged 3.94%. This appears to be a good deal until you discover that the arrangement fee is a massive £1,495.

Moneysupermarket.com, the comparison website, has done some calculations and discovered that Lloyds customers would pay a total of £29,229 over the 3 year term, whilst other borrowers would face a total outlay of £29,819.

ING Direct also has a 3 year fix at a slightly higher interest rate of 3.95%, but the total repayment works out at only £28,549 because the arrangement fee is lower.

The editor of moneysupermarket.com, Clare Francis, said this is a classic example of why it is essential to look at more than just the headline rate when comparing mortgages. Otherwise you could find yourself paying out more than necessary.

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David Cameron has blamed the banks and building societies for preventing an improvement in the housing market.

The Prime Minister made the accusation in a recent speech to voters in Leicester. He said that it was imperative for the UK economy for the housing market to become more competitive. He explained that mortgage lending companies tightened their lending criteria after the global economic crisis but it was now time for them to return to respectable lending. The pendulum has gone too far the other way, he said.

What is needed, he added, is a market which encourages people who are considering moving home to be able to do so. Cameron went on to cite the case of a single person who earns a decent salary. That person visits the bank and although he is quite a good risk, the bank won’t agree a LTV mortgage of 80% or advance four times the rate of his salary.

Last Wednesday, Grant Shapps, the housing minister, launched the coalition’s plans for a house building revolution. The government is hoping that by revamping the rules surrounding planning permission, more families will be encouraged to construct their own homes.

The housing minister is also soon going to meet with the head of the FSA, Hector Sants. He will discuss mortgage regulations over growing concerns that strict rules will kill new mortgage products.

Meanwhile, a new survey from the Bank of England revealed last week that demand for contractor mortgages fell markedly in the final quarter of 2010.

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The Bank of England recently polled nearly 2,000 UK homes and discovered that over 50% of them are struggling to make credit card and other unsecured debt repayments.

22% have been deterred from spending because it is becoming harder to borrow money, a rise of 6 percentage points on last year. 90% of the survey’s respondents also said they expect the government austerity measures will have a big impact on them.

Despite this, less than 50% of people have taken any measures to increase their savings, work longer hours or find a job with a higher salary.

Around 36% of people with low LTV mortgages and 35% of those with high LTV mortgages have been deterred from spending due to concerns over the availability of credit. This concern has also deterred just over 10% of people who own their home outright.

The historically low base rate of 0.5% has benefited the 23% of home owners with a base-rate tracker mortgage whilst the 20% who have a standard variable rate deal have benefited less because mortgage lending institutions have not passed the full rate cut onto their customers.

However, the survey’s overall findings suggest that a lot of borrowers with contractor mortgages could find themselves in deep water once the central bank increases the base rate as it is sure to do at some point next year.

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Figures recently released from the CML show that mortgage lending dropped by 16% in October and experts warn that the early part of next year is unlikely to herald a recovery.

At the end of last week, the CML said that 46,000 mortgages for house purchases were granted during the month whilst the value of these home loans dropped by 12% to £6.7 billion.

First time buyers were the biggest losers with only 17,000 approved mortgages worth £2 billion, a drop of 20% on the corresponding month last year.

One expert said that the housing market was set for a prolonged winter chill as public sector cuts and an expected rise in interest rates further squeeze deposits.

However, the CML did point out that the final quarter of 2009 saw inflated numbers as people rushed to buy before the end of the stamp duty holiday.

Remortgages also fell by a fifth in October to 26,000 compared to the same month last year and the value of remortgages was £3.1 billion, a decrease of 24%.

Also last week, the RICS said that owner-occupier rates in the UK have dropped to 68% from 71% in 2003. A spokesperson from the Institute said that despite falling house prices, it expects owner-occupier rates to edge lower as more people turn to private lettings. A combination of tighter lending constraints and the general uncertainty still surrounding the economy, point to an increase in the number of people who will be unable to get a foot on the housing ladder.

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The latest data from the British Bankers Association, released on Tuesday, showed a slight increase in net mortgage lending last month compared to September. However the forecast for the housing market continues to deteriorate as the amount of contractor mortgages approved dropped again to a 19 month low.

The seasonally adjusted net mortgage lending figure grew by £1.7 billion in October but this was a much weaker growth then the £3 billion increase recorded in October 2009.

Only 30,766 mortgages were approved last month, a drop of 292 on the previous month and 11,310 on the corresponding month last year, and was the lowest rate of approvals since March 2009.

In spite of these depressing figures, some financial institutions are still recording profits. Nationwide, for example, showed a 26% rise in half year profits despite suffering massive losses on its low priced 2.5% tracker mortgage.

Graham Beale, the Nationwide’s chief executive, pointed out that the building society lost £300 million in the past six months from customers on a standard variable rate mortgage of 2.5%. To compensate for this, the building society is slimming down operations and closing its network of agencies. It has also closed 15 branches in the last year.

In the first six months of the year, Nationwide lent mortgages worth £6 billion but its share of the market fell back from 9.2% to 8.5%. Beale added that he does not expect the Bank of England to raise the base rate until late next year and due to the building society’s low priced mortgage offerings, savers are unlikely to see higher interest rates in the near future.

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