Leek United Building Society has launched a new fixed rate buy-to-let mortgage for direct customers only set at 4.58% to 30 September 2012, with a maximum loan-to-value of 60%, and a fee of £995. This new product as the building society comes back to the market after a short absence.

Bank lending to home buyers and property investors plummeted to the lowest level in a decade over the past year.

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Experienced landlords looking for buy to let mortgages to expand their portfolio can check out a new property investment loan from Kensington.

A new mortgage line for landlords who already have two buy to let properties offers up to 75% loan-to-value with two and three year fixed rates from 5.69%. to 6.19%

The deal comes with a 2.5% arrangement fee.

Borrowers can hold up to 10 investment properties worth up to £2 million in a Kensington portfolio.

“The private rental sector is an increasingly important form of housing and buy to let investors have played a significant role in improving quality and affordability for tenants. Tenant demand is growing and as the property market recovers, many landlords are looking to meet this demand and expand their portfolios,” said Charles Morley, head of sales and product development at Kensington

Buy to let landlords are getting out their calculators to see how lenders withdrawing interest only mortgages might affect portfolio profitability.

Most landlords have interest only deals with their lenders because they are cheaper than repayment mortgages and the property business objective is to sell a property at a profit to repay any loan while keeping costs low to free cash flow.

It’s unlikely lenders will change existing loans, but the fear is that future property investment mortgages may be repayment only after Lloyds TSB withdrew interest only deals for loans after £500,000.

This is a wake up call for investors because Lloyds TSB is the UK’s largest mortgage lender and owns several popular buy to let brands like BM Solutions and Birmingham Midshires.

Other lenders are also looking at the move because interest only loans leave borrowers with few options other than selling at the end of the mortgage term in the absence of any other repayment strategy.

At this stage, withdrawal of interest only products is a worry not a certainty for buy to let mortgage borrowers.

In the long term, the possibility highlights an underlying concern for property prices

Many property investment strategies were based on prices rising in a market fuelled by inflation and taking out profits to reinvest.

This means many investors are vulnerable to mortgage payments going up because they have a high level of borrowing against their properties. Making repayments more expensive makes rentals less profitable and puts more pressure on finding cash to pay the bills, especially in void periods.

The Bank of England has announced this week that inflation is likely to remain around the 2% mark for the foreseeable future which allows the bank rate to stay low.

That means the bank sees house price inflation remaining low with a likelihood of modest increases in property values.

Lenders see a similar scenario and want to protect themselves from borrowers who may not be able to repay the cash they owe when their loans are up.

These lenders want cash not to repossess property, because if prices do not move, they are likely to have to write off billions selling homes at a loss.

Switching borrowers to repayment mortgages is a sensible and prudent option for everyone – the problem is whether landlords and investors afford to pay.

Property investors searching for buy to let mortgages are hugely out of synch with the number of mortgages available.

Online keyword search analysis shows that 330,000 searches were made on the web for ‘buy to let mortgage’ in January yet the latest figures show only 93,500 investment mortgages were agreed in the whole of 2009.

The figures come from comparing online technology company Greenlight’s newly released property related online searches with the latest Council of Mortgage Lender’s loan statistics.

Figures over a like-for-like period are not available.

Meanwhile, the CML is concerned a multi-billion pound hole in mortgage funding generally will also shrink the number of investment mortgages agreed this year.

Although house price statistics seem to show house prices are increasing, they vary widely across the regions with London and South East feeling the major benefit as the ripples have yet to reach farther.

The problem is the government has propped up mortgage lending since the recession and the aid schemes are set to end over the next few months.

Traditionally, lenders would raise mortgage funds from money markets by securitising their loan books, but this market is wedged tightly closed and  is not an option for raising more cash.

Lenders are hoping the new government will act to stabilise the money markets so cash is freed up to fund more mortgages.

CML economist Paul Samter said: ‘With the gradually improving economic backdrop and interest rates still low, we continue to expect a gentle improvement in market conditions later in the year. However, the longer-term problems facing the market remain and will limit the speed of recovery in the housing market and wider economy.’

Gross mortgage lending was an estimated £11.5 billion in March, a 24% rise from £9.3 billion in February and a 3% rise from £11.2 billion in March 2009, according to data published today by the Council of Mortgage Lenders (CML).

The figures are in line with the typical seasonal pattern of a rise in lending volumes in March.

Gross lending for the first quarter of 2010 was an estimated £29.5 billion, a 24% decline from the fourth quarter of 2009 (£38.9 billion) and a 9% decline from £32.4 billion in the first three months of 2009. This is the lowest quarterly lending total since the first three months of 2000, but is very much in line with our forecast of a gross lending total of £150 billion this year.

CML economist Paul Samter commented: “Overall, housing and mortgage activity remains subdued, but is comfortably higher than in the depths of the recession a year ago. Despite the increase in activity late last year and a subsequent fall early this year – due to the end of the stamp duty holiday – the underlying position looks to have barely changed. But with the gradually improving economic backdrop and interest rates still low, we continue to expect a gentle improvement in market conditions later in the year.

“However, the longer-term problems facing the market remain and will limit the speed of recovery in the housing market and wider economy. Financial institutions still face the prospect of around £300 billion of official support schemes beginning to end from next year, and will need to find alternative funding sources. This will likely limit how much new funding can be made available to the housing market.”

CML members are banks, building societies and other lenders who together undertake around 94% of all residential mortgage lending in the UK.

Borrowers who have lost money by dealing with five separate mortgage advisors can claim compensation from the Financial Services Compensation Scheme (FSCS) as they have been declared in default.

Declaring the firms in default means they are unable or likely to be unable to pay claims against them and triggers FSCS protection for their customers.

The firms are:

• PMSG Insurance Services Limited also t/a Professional Mortgages Services Group of Darlington
  
• Financial Quest UK Limited of Hyde, Cheshire
• Finance Direct (UK) Limited of Manchester
• First Class Mortgages Limited of Barking, Essex
• Network Data Limited of Chertsey, Surrey

For mortgage advice and arranging the maximum level of compensation for claims against firms declared in default before 1 January 2010 is 100% of the first £30,000 and 90% of the next £20,000 up to £48,000 per person per firm. However, if a firm was declared in default on or after 1 January 2010 the new compensation limit is 100% of the first £50,000 per person per firm.

Subprime mortgage lender Kensington Mortgage Company has to pay £1.225 million in fines for unfairly treating some customers in arrears and has to pay an estimated £1.066 million in customer compensation.

The firm has agreed to redress customers who were in arrears and charged specific unfair and/or excessive charges.

The Financial Services Authority (FSA)  identified a number of serious failings by Kensington which occurred between 1 January 2007 and 31 October 2008 in relation to its mortgage arrears handling processes and in its dealings with customers in arrears.

These include:

• Failing to ensure mortgage servicing staff acting on its behalf had adequate understanding of treating mortgage arrears customers fairly;
• Concentrating on the repayment of mortgage arrears over a short period of time rather than agreeing an arrangement to pay the arrears based on the customer’s individual circumstances;
• Applying three charges to customers’ accounts that were unfair and/or excessive.  These were:
• A fee for a returned direct debit which was charged regardless of how many times the direct debit had already been returned unpaid;
• An excessive fee for cancelled direct debits which did not reflect administrative costs;
• An early repayment charge on mortgage balances which included arrears fees and charges within that balance.

The firm also failed to take reasonable care to organise and control its affairs responsibly and effectively, and to ensure adequate risk management systems.  Its management information focused on the performance of the firm’s mortgage book and the profitability of the business, rather than on treating customers fairly.

The FSA has also taken into account that Kensington has made significant improvements to its arrears and repossession processes since the early part of 2008 or the fine would have been £1.75 million.

Margaret Cole, FSA director of enforcement and financial crime, said: “This case should serve as a strong reminder to firms dealing with retail customers, especially customers in a vulnerable position such as those with mortgage arrears, that the FSA will take robust action where it sees that customers are not treated fairly.  Retail firms which fail in their obligations to customers should expect not only a substantial fine but also that they will have to pay back customers who have been disadvantaged.”

Kensington has provided buy to let mortgages as well as loans to homeowners.

Godiva Mortgages has cut the rate on their two-year year buy to let base rate tracker by 0.50% to 3.35% until June 2012

The deal is for 60% loan-to-value with a £250 booking fee,  £800 arrangement fee plus paid for valuation and legal fees up to £680.

Early redemption charges are 4% of the balance repaid before June 30, 2010.

Godiva is the buy to let arm of Coventry Building Society.

Other buy to let products are available – including a 70% loan-to-value loan at 5.50% with no early redemption charges, a £250 booking fee and £800 arrangement fee.

Top rate taxpayers with property investments should consider offset mortgages rather than savings to beat the impact of the new 50% income tax rate.

Savings give a miserable return and no UK accounts offer the massive 7.4% return a super tax payer would need to hedge against tax and inflation.

These mortgages offset savings against mortgage debt.

Unlike a savings account interest is not earned on the balance of the savings pot, instead this pot is offset against the outstanding mortgage balance, with interest only accruing on the remaining balance.

This means the mortgage will be paid off earlier, and the interest paid on the mortgage will be significantly less with no tax payable.  The cash balance in the offset account can still be accessed at any time.

For example, customers taking out a £175,000 offset loan from Woolwich at 2.89% and holding £50,000 in a linked savings account, would only pay interest on the remaining £125,000, saving £13,372.09 in interest over the lifespan of the mortgage and knocking four years off the payment term.

To be to match this deal, savers in the 50% tax band would need to find a savings rate of at least 6.2%. This compares with the highest currently available savings account rate which is 5%.

Hannah Mercedes-Skenfield of moneysupermarket.com explained the strategy:  “Many people in the new 50% tax bracket will be looking at ways to limit the impact of both tax and inflation. As a result offset mortgages are an extremely attractive option for borrowers who also have a decent savings pot.

“It’s worth noting however that offset deals won’t necessarily be the right option for all prospective borrowers. The savings that consumers could realise will depend on the proportion of the mortgage debt they hold in savings and the rate they pay on their mortgage. Don’t forget to factor in any additional costs of remortgaging as these could be high depending on the offset mortgage you choose.”