In the wake of the natural disaster that devistated Japan and the turmoil that continues to occur in the Middle East mortgage rates dropped sharply as many investors are nervous about their money choosing to invest in bonds including many bonds that fund mortgages as these are considered a safer form of investment.  This is good news for those who are searching for a home as the prices are down for the first time in a few months making it a ripe time to try to get a foot up on the property ladder.

The drop in mortgage rates is also good news for those in a variable mortgage who have been considering changing their mortgage in an effort to take care of the security of fixed mortgages before the bottom drops out on the inflation rate which is expected to cause mortgage rates to sharply increase in the next six months.  In fact, the situation is predicted to be quite dire for those who are stuck in variable mortgages so with the current stance of the market now is the time to take advantage of the change before the world economy stabilizes again.

At the same time, interestingly enough the demand for loans also dropped as homeowners were reluctant to consider moving and buyers have been holding out unsure if a large investment is a good idea in the current economic climate.  In fact, applications for refinancing were up by about 1% while the requests for new purchase loans fell by four percent over last week which is a total decrease of almost 16% when compared to this time last year. The difference can be seen in those seeking out fixed mortgages as approximately 66% of all mortgage applications were for refinancing.

The silver lining for those who still have variable mortgages without the option to refinance is that many economists now believe that mortgage rates will take longer to rise pushing back the deadline by another few months as a result of the unpredicted earthquake and tsunami in Japan.  Now it is projected that mortgage rates will not increase until the last quarter of 2012 instead of the last quarter of 2011.

As if the fact that the mortgage rates are already threatening to go up placing many people with tracker mortgages on the possible cliff of disaster, now it looks as if mortgage lending criteria are stiffening again as lending opportunities revealed to dropping by an additional 13% at the close of January.  It was already revealed last week that for the first time in three quarters, house prices took a nose dive during the fourth quarter of 2009, but now the news that lending is down again may be just the bad news that the housing market has to take before it is considered depressed officially again.

According to figures released by the Council of Mortgage Lenders (CML), during January only £9.2 billion was advanced to consumers during the month compared to December when £10.6 was given out.  Even worse, last month’s figures were at the lowest level of mortgage lending that has been seen since last February.  While the weather is partially being blamed for the dip as it kept many people inside on days when they otherwise may have been scouting for a new home or meeting with the bank, it mostly reflects the market instability that already has many people teetering on edge.

It is no secret that the high deposits that many lenders are now asking for that can range anywhere from 10%-40% of the house value is impacting many buyers decisions to purchase a home compounded with the ever looming threat of an increase in the mortgage rate attached to the home.  Add unto to this the fact that many expect the property market to stall within the next six months and the economy to perhaps fall into a double dip recession and there is plenty of reasons why the average lending advances are falling.

Bank of England found that only 41,000 mortgages were approved during last month which was aligned with the figure for the previous month of December as well which was the lowest lending figures that have been seen since March of 2009.  According to the CML, even if the mortgage demand were to start to pick up due to the mortgage rates and the amount that banks will have to pay out to public support schemes in return for their bailouts it is unlikely that there will be a large change in how much was actually received.

As the criteria for mortgages continues to increase against the equally crushing power of rising mortgage rates families that consist of children are facing the blow as lenders are handing out reduced mortgages to those with kids versus couples without.  This could cause parents to be prevented from acquiring a cheaper deal on their mortgage once the interest rates start to skyrocket since they will not be able to find a lower mortgage rate unless they choose to downscale which depending on the size of the family may not be an actually possibility.  However, those with fixed mortgages should be counting their lucky stars as the increase in mortgage interest rates will not affect them.

After the FSA released its review of the current mortgage market many building societies and banks responded by tightening their criteria for loaning; in particular the criteria that judges a family’s budget to award them a lending amount.  However, this unfortunately has hit those with children even harder as the reduction in the mortgage amount offered could be as high as twenty percent although most families will notice that it sits at about ten percent.  Many parents are now worried that they will not be able to acquire a fixed rate mortgage before the interest rates soar.

In the past children were not counted as full dependents that would affect the amount of money that is awarded in a mortgage, however now that it is a factor it has caused a large uproar as people are saying they should not be penalized for choosing to have children.  While this is not a problem for families in home at the present, once interest rates start to double it will prevent them from changing their rate and may in some cases lead to foreclosure and the loss of a family home which in turn would lead the market cycling back to the same dead end its been stuck in for the last few years.

According to recent figures released by the Council of Mortgage Lenders (CML) a rise in the mortgage interest rates could result in substantial widespread financial difficulties for many families, with a little as a 2% increase resulting in roughly 2.9 million mortgages currently being offered no longer being affordable. This is especially true in today’s market where the combination of increased taxes, job instability (especially in the public sectors) and higher than expected inflation are all playing their role to make troubles for many people. At the same time inflation itself is seen as one of the key factors behind the worries as increased inflation must be met with increased interest rates in order to combat it, making this a vicious cycle for many current and prospective home owners alike.

To complicate matters a combination of falling house prices along with increasing difficult mortgage regulations has caused homeowners that are currently holding a mortgage to be unable to remortgage elsewhere for better deals. This means that in most cases they are stuck with whatever offer they were able to obtain in the past and cannot take full advantage of any new offers such as locking in an affordable fixed-rate deal in order to keep their monthly interest rate low.

Both the Financial Services Authority (FSA) and CML warn many home owners to be on the lookout for any substantial changes underway in the coming months that could drastically affect a household’s liquidity. This is especially true in light of the FSA announcing that roughly 45% of all mortgages were done so without lending institutions verifying a recipient’s income first, potentially causing large pockets of financial instability in the roughly 5.4 million home loan holders that have not had their own personal income verified for mortgage viability.

Earlier this year it was reported that mortgage rates on fixed-rate mortgages had hit a record low – dropping to prices that hadn’t been seen since 2007. Now, just a few months later, rates on mortgages across the board have continued to drop substantially, even re-mortgages on homes that had previously been refinanced during “less than desirable” mortgage periods.

The cause for this continual drop lies primarily in the fact that many lending institutions have found that the mortgage market has become substantially more stable in recent months following the strong real estate market trends as well as the continuation of the low base interest rate by the central Bank of England. These, among other factors, has helped to create a highly competitive lending market wherein many lending agencies are actively competing with each other to offer the most beneficial rates possible on their mortgage offerings.

For consumers this is excellent news as, naturally, higher competition results in significantly better offers for all those looking at sourcing out financing either for the purchase of a home for the first time or others who are simply looking to expand their housing portfolio.

Unfortunately to take full advantage of these rates as they stand on the market many prospective buyers may still need to provide a large amount of initial funding for a down-payment in order to secure the best rates possible on a loan. Some lending institutions may require up to a 25% down payment in order to secure the best rate possible, with others offering slightly less of a minimum down payment requirement to still realize some decent rates.

Whether or not the lending requirements for new purchases will adjust with the higher competition levels found in the market today is another matter of speculation, especially as recent figures indicate that housing supply is currently outpacing demand and could subsequently have a negative impact upon the overall lending industry.

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.

After the precarious overall situation in the market during the last year, many homebuyers and homeowners alike are beginning to ask whether or not now is a good time to take out a mortgage. Despite the rather parlous nature of recent times, things may finally be started to look up a little, as building societies and banks show some signs of awakening from their lending slumber, although getting a mortgage is still harder now than it has been for a long time.

Borrowers on the lookout for a mortgage have been heartened in recent months, as rate cuts coupled with some better lending deals emerge for those with deposits below 25%.

This aside, the mortgage market is still far from fully recovered, and many lenders are still adopting a safety first mentality, although the recent comparable measure of stability in both the economy and financial sector-as well as the general feeling that house prices have seen the worst of the market-has led to a gradual return of confidence in the sector.

The deepest cuts have come to fixed rates-particularly since the start of the year-principally because of just how costly they were in comparison to trackers. In fact, borrowers capable of summoning up a 25% deposit can choose from two-year fixed deals, from between 3.2% to 4%, with the best five-year fixed deals for the same level of deposit have fallen below 5%.

The cheapest pay rates are still being offered by tracker deals, with some lenders offering a rate of 2.49% to those capable of raising a 25% deposit. Customers attracted towards trackers should be aware, however, that such deals will only become more and more expensive as the base rate climbs, which it will certainly do, from its current historic low of 0.5%. Five-year fixed rates are starting to look better and better to many, and such deals also save on re-mortgaging costs, although raising as high a deposit as possible will afford the best deal. Reckon on a minimum of 25%, although, for the very best deals, 40% is much better.

The outlook for fixed rates to drop further looks bright, with the UK recovery aiding confidence-however slight it may still be. Lending has also increased a little, but life is still hard for borrowers. The main problems is with funding, as banks and building societies lack the liquidity to return to boom-time levels of lending. Also, rates remain at a record low, and the housing market is still fragile, and any future problems with the baking sector will mean a rapid return to uncertainty.

The choice facing borrowers between a tracker or a fixed mortgage is a very tough one, with some opting for the tracker option as they are currently the cheaper option due to extremely low interest rates, although any sudden rise would make this choice look a very poor one overnight. With the inflation rate in the UK reaching 2.9%, economists remain split on exactly when and by how much the interest rate will rise.

Some economists are predicting a rise as early as May of this year, although this would still appear to be very much the minority view. Many others are forecasting no interest rate rises until perhaps the final three months of 2010, and more rises following in 2011. Whilst some may look simply at the current interest rate and inflation figures (CPI currently stands at 2.9%) to make their choice, a number of economists are advising that lifetime trackers may be the wisest choice. This may also be due to the fact that the predicted cuts in pubic expenditure and concomitant tax rises will result in the same curbed levels of inflation as would a rise in interest rates – even if inflation remains high-ish.

Many have forecast that rates may not rise over 2% for another three to four years. Tracker mortgages have continued to rise in popularity over the last twelve months, and currently account for more than half of all newly issued mortgages. In fact, figures for the easily part of last year show that around 90% of newly issued mortgages were fixed rate mortgages, especially for many first-time buyers. Yet, many Building societies are now breaking their promises to borrowers and raising their rates, citing what they call ‘exceptional circumstances.’ In the wake of this some mortgage brokers have postulated that, should rates remain at their historically low levels over the next few years, then those borrowers with smaller deposits may benefit more from a tracker mortgage. The decision is, however, more dicey for a borrower with a larger deposit, of perhaps 40%. Average figures show that, in such a case, the difference between the two mortgages would be negligible at best.

Those borrowers holding mortgages with building societies will now be looking at steep increases in mortgage repayments after two further mutual lenders announced that they would increase their standard variable rates (SVRs). First, Norwich and Peterborough, which boasts over 50,000 borrowers, is raising its variable rate to 5.35% from tomorrow, seeing a half point raise. This means that borrowers with interest-only rather than fixed-rate mortgages of £150,000 will be looking at increases in excess of £700 per year in their repayment costs. Also, the smaller lender, Holmesdale, is raising its SVR to 4.89%, seeing a rise of 0.35%. The market has now seen four building societies in total raise rates in a short space of time, with both Skipton and Nationwide raising rates during the course of last week.

Analysts and insiders expect the trend of rising rates to continue, and are advising borrowers to side-step the extra concomitant costs by switching to cheaper deals with alternative lenders, if need be. The rate raises will see those borrowers with lower deposits and equity stakes hit hardest, as they will be unable to switch. Figures released today by the Building Society Association illustrate that mutual societies’ gross mortgage lending fell sharply last year to just £18.6 billion from £37.5 billion in 2008. The figures mask a minimal, short-term spike in gross lending figures seen in December 2008, which stood at1.8 billion, up slightly on November’s figure of 1.6 billion. Analysts believe that this short-term spike was due mainly to the fact that borrowers were looking to obtain deals before the reduction of the stamp duty threshold. Insiders also believe that, total gross lending will most probably remain at low levels until funding and credit conditions improve, particularly for those seeking bad credit mortgages. These fears are underscored by the fact that total gross lending during 2009 was only half that seen in the previous year.

Building societies have been particularly hard-hit in the current low iinterest rate market conditions, as the low rate has seen their profit margins ebbing away. Their mortgage lending has relied upon the deposits of their savers, due to the freezing of wholesale money markets as a result of the global credit crunch. Also, competition among lenders-especially from state-owned banks-has increased the cost of drawing new savers. As many as eleven building societies have now raised their variable rates, and analysts expect more to follow suit soon as market conditions continue to bite. Ultimately, the pain will be unavoidably passed on the customers.

Reports indicate a growing number of low loan to value (LTV) mortgage products hitting the market in 2010 over December figures, showing a growing number of beneficial options for prospective home owners with less available capital to spend on a home. Specifically, the reports show an increase of 22% for those with an initial deposit of 15% of a home’s value and a 11% growth of products with a mere 10% initial deposit. This means a growth of 384 and 165 products, respectively, for each loan type over figures just one month previous at the end of 2009.

Interest rates on a number of higher LTV products have also seen a decline over the past few months with mortgages holding 80% of the home’s value showing a marked reduction of 0.77% compared to what was seen available as late as October last year, meaning some of the best mortgage rates for homes are now available for many individuals seeking to purchase with less available cash on hand.

These numbers are particularly good news to many first time buyers who have been having a particularly difficult time as of late edging their way into the highly competitive property market where constantly shifting conditions have led to many less-than-desirable situations for many people. Those looking to re-mortgage their home for slightly less than its full worth may also find these numbers helpful as it could mean the ability to pay off other residual debt by utilising their current home’s residual value more effectively immediately rather than trying to balance out multiple debt holes at once.

For those who find this information still less than inspiring should they have little to no flexible money for deposits many mortgages with even a 5% initial deposit have shown a marked interest rate decrease, dropping by as much as 0.71% since October as well. The only concern at this point is how long this decline will last and whether or not interest rates will climb in the future given recent inflation increases and many banks limiting available grants on some loans, so prospective home owners are encouraged to take advantage of these low rates while they can and keep a close eye on the market in the coming months in order to ensure that they are getting the best possible value for their money.