With most lending institutions requiring buyers to have significant deposits on hand in order to secure the best mortgage rates on their loans (or to even be approved for a loan in the first place) many prospective home owners have turned to an old yet familiar source of funds: the venerable Bank of Mom and Dad.

As most mortgage companies can tell you the actual number of mortgages being approved on the market today have first-time buyers as a significant minority. In fact, of all the mortgage offers made available on the market in March, only 7% of the total out there were granted to first-time buyers seeking out homes. This means that re-mortgages and other mortgage types have taken up a considerable portion of the market share in order to provide funding for a home purchase that would otherwise be impossible.

The largest reason for most first-time buyers being able to afford a home purchase today lies in the fact that most individuals simply have not developed enough savings to afford the necessary down payment in order to become eligible for the best rates possible. This means that for a home values at roughly ?300,000 a 20% deposit, or roughly ?60,000, would be needed to ensure that a prospective home owners would be able to get the best rates possible to them. Given most young workers’ salaries, however, this sort of available equity being on hand to give to a lending institution is generally considered unfeasable and unrealistic at best.

Until the country’s economy turns around enough to make a reasonable comeback most families are simply considering sticking to the "group support" option to provide their children with the necessary funding – otherwise many prospective buyers simply will not be able to make purchases. As it stands right now the current status and regulations have effective removed an entire generation of buyers from the market. something that is far more likely to hurt rather than help the overall economic recovery in the long-run.

With the economy still in a recovery status many experts and non-profit organizations are warning many home owners to be wary about what any increase in interest rates or mortgage costs could mean to them. In fact, according to recent polls conducted by the charity known as Shelter, it is estimated that roughly 5.4 million homeowners throughout the country that are relying upon mortgages to keep a roof over their heads may find themselves in dire standings should interest rates increase at all over the current low mortgage rates made possible by lenders.

The sense of security that roughly one third of all mortgagers currently have over their finances is seen as a direct result of both decreasing repossessions in the current year along with the continuation of record low interest rates by the Bank of England – having a very positive effect upon both tracker and fixed-rate mortgages. This has allowed many households to even take on reasonable bad credit mortgages in order to help them recover from any hardships they may have faced over the past year, though most people are still relying upon the low rates to remain low in order to manage their monthly payments accordingly.

A combination of continued salary freezes, poor market conditions, layoffs and other side effects of a bad economy are all expected to contribute to the continued poor property conditions should things not continue to recover properly according to many economists – something that is a very realistic scenario should the recovery falter even slightly in either the short or long run as it could easily be a drastic rise in negative real estate trends.

Currently as of the end of March there has been roughly an 8% decrease in overall repossessions throughout the UK as compared to the rest of the first quarter of the year, with a roughly 26% decrease over the same period in 2009. While these trends are positive home owners are still warned to exercise caution when navigating the market.

The Post Office, in conjunction with the Bank of Ireland, has continued to expand its mortgage offerings to a number of customers throughout their respective regions in an attempt to secure more of the market sector and establish themselves as a competitive member in the real estate industry. Having already established control of roughly 3 to 5% of the residential mortgage market thanks to over £1 billion advanced in loans in 2009 alone its current offers may be more than appealing to a number of purchases – particularly first-time buyers with limited deposits available that are looking for a decent fixed-rate mortgage.

With rates reduced for the fifth time this year already, cutting the overall interest by .36%, the Post Office also is looking at offering a range of what they have described as fee-free, affordable fixed rate mortgages over five year periods for re-mortgages with up to a 75% loan-to-value ratio – dropping interest down to a mere 4.78%. For those looking to get a loan with a slightly steeper 85% loan-to-value ratio and are willing to pay it back over two years along with a £999 fee offers are available at a mere 4.29%. A 90% loan-to-value loan at the same time frame with the same fee will also provide buyers with roughly a 5.45% rate while a five-year period will clock in at 5.99%.

Overall these fixed-rate deals are being seen by many potential buyers and home owners alike as quite attractive, especially given the considerably higher rates offered by many other "big name" lending institutions out there that have been charging more for the same – and sometimes even worse – service. Whether or not rates will continue to be dropped in the coming months is also up to debate given the fact that the Post Office has already dropped their lending feed on five separate occasions this year alone, though most people do not anticipate future drops and recommend locking in the affordable rate now to be sure to take full advantage of these deals.

According to recent figures gathered from a number of mortgage lending agencies the buy-to-let mortgage market has seen significant improvements in recent months over what has been seen even a year ago today. One of the primary factors that has led to this situation has been the improvement of actual products being offered on the market today – even if it comes at the cost of many landlords being turned down for actual mortgage applications.

One of the primary reasons why the buy-to-let market has shown significant recovery in terms of offerings lies in the fact that retrospective analysis of previous offerings to both domestic and overseas investors has led to a number of poorly designed products being scrapped entirely. While this has unfortunately limited the market somewhat in terms of what landlords can actually apply for (as well as what many lending institutions are willing to accept as an acceptable applicant) at the same time it has helped ensure economic stability to the buy-to-let sector for both developers and tenants alike.

Given that many developments throughout the country have also appreciated at a rate that has been below what was initially anticipated an new regulations in regards to mortgage offerings have been adjusted to reflect accordingly. While this means that not at much money is flowing into the buy-to-rent development areas (with only 13% of developers able to secure loans last year) at the same time it will help prevent an economic financial bubble from forming that could significantly hamper all attempts to recover – a concern for all as the economy is finally starting to get back on its feet after a long period of unrest and uncertainty where thousands of homes were repossessed by banks due to the inability of owners to make payments after prices failed to meet expectations.

According to the very latest published indices, UK property prices are still very much on the rise, and the predictions are that they will continue to do so. According to predictions, house prices will rise by a minimum of 5% throughout 2010. This prediction has come from the Centre for Economics and Business Research (CEBR), and the thinking stems from the combination of continuing low mortgage rates as well as the shortage of new homes being built coupled with a large wave of first-time buyers looking for new homes of their own, leading to a lack of market supply, thereby nudging house prices upwards. Analysts seem to expect lower house prices rises throughout 2011 of 3.4%, with the following year seeing a much stronger rise of 9%. These projected figures also came with warnings regarding cuts in public sector jobs and extremely low wage inflation as a result of possible upcoming austerity measures may well limit the possibility and general scope for house price inflation.

The CEBR group has also predicted that average mortgage rates will likely drop from the current level of roughly 4% to 3% by the start of 2011. The general feeling is that the drop will be influenced by the reactions of the money markets to cuts in the government’s budget deficit. Their research also anticipates that the Bank of England base rate will stay at 0.5% for a longer period of time than is believed currently. Many economic analysts believe that the base rate will climb to 2.25 by the end of next year, thus having a potential major impact on both variable and fixed-rate mortgages, although CEBR believes that the rate will remain at 0.5%.  They did, however, concede that the base rate might rise temporarily higher in the event of a hung parliament in the upcoming general election, and that it could rise to 3.5% in the worst case scenario. They added that the effect of this would most likely be temporary, and rates would return to where they would have been had there been a single party victor within 18 months.

The latest report has come on the back of a recent price index that detailed house price growth having gone through double digits for the first time in around three years, which many believe suggests that market confidence has come back with a bang.

According to official figures from the Bank of England, net lending on mortgages  fell to only £318 million during the month of April, a figure down from the mark of £1.85 billion recorded in February. Net lending is the figure that strips out redemptions and repayments, and the latest figure stands at its lowest rate since July of 2009 during when it was in negative territory. The low figure, which many believe may well partly reflect the market distortions which occurred as a result of the UK stamp duty holiday period which resulted in a large number of homebuyers pushing through their transactions on various lower-value homes before the holiday came to an end at the end of 2009.

The figure may also be able to be explained due to the extreme weather conditions experienced in the UK towards the beginning of this year. The period of inclement weather served to curtail activity in the housing market, as has the political uncertainty stirred up as a result of the increasing likelihood of a hung parliament in the upcoming General Election. Economists, however, have pointed out that such factors, by themselves, do not totally account for the declining activity in the housing market seen since the start of 2010 – particularly given the record-low rates on fixed-rate mortgages as well as even favourable re-mortgage offerings. Experts have also pointed to problems associated with slow lending.

Hetal Mehta, the senior economic advisor to the Ernst and Young Item Club, pointed out that slower rates of mortgage lending would most likely “act as a drag on housing market prospects.” She also pointed to weak lending data, despite the fact that mortgage approvals are slightly up on February levels. She also pointed to the fact that what she referred to as ‘the mortgage-less recovery’ would likely be unsustainable, with continued concerns regarded unemployment.

The number of mortgage approvals for house buying climbed a little throughout the month of March, although the figure was still some way down on levels seen in November 2009, 48,901 to 59,572, respectively.  Consumer credit growth has also been seen at levels a little lower than expected, up £325 million on the month as opposed to a forecasted £400 million jump.

In such financially straightened times as these, financial matters are paramount in people’s minds, and many people are investigating all methods by which money might be saved from their household bills. Surprisingly enough, not many people actually investigate the largest financial burden they will probably ever have-namely, their mortgage.  Most people simply view the regular monthly mortgage payment as something inevitable and unchangeable, with many people simply letting it continue unchanged for years, blindly accepting that they will simply be facing twenty-five years of debt at least.

Whatever they may think, this certainly need not be the case, and some housing experts actually recommend overpaying the mortgage every month in order to save a large amount during the whole life life of a mortgage – even fixed-rate mortgages and particularly bad credit mortgages with less than favourable rates. The benefits of overpaying one’s mortgage can be very definite, and, bearing this in mind, it is strange that more borrowers don’t do it. As the mortgage is such a long-term financial responsibility, any measure that serves to reduce the number of years the mortgage will exist, as well as lowering the overall amount it is necessary to pay (via saving on the payable interest) must surely be a positive thing. By overpaying the mortgage, borrowers can also increase the amount of equity that exists in the property, and this will grant the ability to negotiate much more competitive mortgage deals when looking for new mortgage financing.

Many borrowers, however, don’t overpay their mortgages for the simple reason that their current monthly payment is right on the threshold of what they can afford, and they simply don’t any extra money available to do so. Although, for those borrowers that wish to have the benefits of overpaying without technically doing so, there exists the possibility of an offset mortgage, where, rather than putting savings into a separate account, the savings are instead put into an offset pot beside the mortgage. Then, rather than accruing interest on the savings, the borrower simply offsets the interest that would have been earned against the mortgage, thereby, in effect, overpaying. As regular savings rates are currently extremely low, those borrowers with large savings could really benefit from the act of offsetting, earning the equivalent of the mortgage rate on savings.

In general terms it always seems to be the way that, in the event that a new tax is imposed, a loophole will always be found to circumvent it. As a result those purchasing prime properties in the UK – and especially in London – are not allowing the possibility of 5 percent stamp duty rates next Spring to pout cold water on their spirits, especially given the favourable mortgage rates found on the market these days. This may well be due to the fact that property developers have already begun to discover legal routes around the new tax burden that will save potential buyers hundreds of thousands of pounds, whilst costing the treasury the same.

Wealthy property owners and buyers feel that they are being unfairly targeted by politicians attempting to balance the books in an over-spent economy, and some are responding by using the new loophole: a special purpose vehicle, or SPV, which is a company or  trust that is established with the property in question as its only asset. After this instead of buying the property in the traditional manner the new owner simply purchases shares in the company with the result that this transaction will only be liable for a 0.5% rate of tax. 

One UK property developer, Rigby&Rigby, has already marketed two properties using PSVs. The properties are a five-bedroom house in Knightsbridge, with a guide price of £6.95 million and a Townhouse in Belgravia worth £6.56 million. Using the current 4% stamp duty rate the SPVs for these properties would amass estimated savings of more than £230,000 for each property.

The Treasury has announced its intention to close the loophole, although whilst it is open it is a legal way for property deals to be done. People undertaking the SPV route, though, should be aware that if their house rises in value since it was entered into the SPV the increase in value will be liable for capital gains tax. As a result, proper financial advice is essential – especially those looking to utilize this hole via an offset mortgage that could drastically affect their financing at a later date.
 
Buyers have another choice to avoid stamp duty impacting on their deal: They can also buy land and then self-build – a possible viable option even for first-time buyers. The coast of the build itself and the final value are not liable to the tax, only the plot. As a result, as long as the land coasts under the stamp duty threshold of £250,000 the buyer will not need to pay.

The chairman of a UK debt charity spoke out recently, claiming that mortgages to first-time buyers should only be agreed once they have had some training and passed a subsequent exam. Malcolm Hurlston from the CCCS has put forward the suggestion that mortgages should come with a buyer beware warning (caveat emptor), instead of the current tax break granted by the Stamp Duty Concession.

When addressing members of the housing credit industry last week Mr. Hurlston insisted that those least well off as well as those purchasing homes before they were ready to remained highly in danger of falling into a trap of “unmanageable debt,” in particular lower income families that already have difficulties with debt in most cases that then take on home ownership either too early or though ways that are "less than ideal". He referenced the Northern Rock situation as well, describing the situation in that particular debacle where a large number of 110~120% loan-to-value loans were in play as pure madness, going on to say that some sort of tuition should be looked into for people on low incomes considering a first-time mortgage.

Of particular interest was a reference he made to recent “pre-buying” federal education programs in the US. He insisted that first time mortgages would be better to not come with tax breaks “but with health warnings.” He compared them to driving licenses, stating that they should be packaged in much the same way when a person gets one after a period of study followed by an exam. He called on Financial Services Authority members to oversee all first-time mortgage buyers, with homeownership certificates to be introduced for those purchasing their first homes – and some feeling as well that it would be good even for home owners looking to get a re-mortgage should they have had problems in the past.

Sue Anderson from the Council of Mortgage Lenders agreed that, although there existed a coherent argument for arranging for much better education and guidance with regards to credit-related issues, the majority of people that encountered problems with mortgage repayments were generally affected by changes in their professional and personal circumstances such as sudden unemployment, which could not be mitigated by such training.