Property Tips

When we consider which property to buy, there are all sorts of factors about the property itself which influence how much we are willing to pay for it.

Does it have the right number of bedrooms? Are they of a decent size? Is there a garden, and somewhere to park the car? Is there an option to extend the property to add rooms as the family grows?

However, there are just as many external factors to take into account – the old adage of location, location, location really does apply. And it’s incredible just how much of a difference those external factors can make to the property’s value.

1) Good transport links

A new study by Nationwide Building Society has found that London properties situated close to an Underground or National Rail station can see their value jump by a frankly astonishing £20,000.

According to the mutual, homes located within 500 metres of a station will be around 7.2% more expensive than an identical property 1,500 metres from the station, the equivalent of £20,300. Properties found within 750 metres will carry a 5.2% premium, 1,000 metres a 3.4% premium and 1,250 metres a 1.6% premium.

Part of the reason this impact is so pronounced is London’s reliance on trains – more than a third of Londoners (34%) rely on them to get to work every day, compared to just 8% across Great Britain.

However, while trains may not have a massive impact on prices outside of the capital, there are plenty of other factors that do.

2) Good schools

Living near a decent school is a motivating factor for many when they look to buy a home, for the simple reason that they want their children to benefit from a good education. However, schools of a high standard can also add some serious cash to the property’s value.

According to a study last year, again by Nationwide, living near a top-performing primary school – in other words, one which achieved a 100% attainment rate in the most recent SAT exams – could add a whopping £20,000 to the value of a property, compared to the value of identical homes near to schools which finished in the bottom 25% of the SAT results.

Even a good, rather than exceptional, school will add an average of nearly £6,000 to the value of the home, not a sum to be sniffed at.

3) Good neighbours

How much your property is going to be worth can be affected by the people who live on your street.

A study by LV last year found that up to 10% can be knocked off the value of a home if it is located near to a dilapidated property. Just as problematic are noisy neighbours, who can take off an average of £18,000 from your home’s value if they tend to stay up all night playing music.

You should also consider your neighbours – or more accurately their properties – when thinking about ways to add value to your own home.

It’s one thing to add a huge extension to your property, which you reckon will take its value up to £400,000. However, if all the other properties in the street are worth £250,000, this may be a waste of time – how many buyers want to shell out £400,000 to live in a £250,000 street, no matter how nice that extension may be?

4) A good street name

What’s in a name? Well, according to property information site Zoopla.co.uk, the name of the street on which the property is situated can tell us a lot about how much that property is worth.

The site found that properties found on streets with ‘Hill’ in the name are worth an average of £341,666, well over 50% more than the average property price in the UK according to Zoopla’s own Zed Index.

Living on a ‘Lane’ also commands a sizeable premium according to the study, with average prices an incredible £328,378.

Other names making up the top five include Mews (£294,869), Park (£283,069) and Green (£269,861).

In contrast, the cheapest properties are found on roads featuring the name ‘Street’, with an average property price of £155,515 – less than half you can expect to pay to live on a Hill!

Mortgage Deals

Fresh from being granted a reprieve by the Coalition Government – the Tories had wanted to completely do away with the FSA – the UK’s financial regulator is starting to flex its muscles over the mortgage market.

Last week, it unveiled new proposals to clean up the mortgage arena, by clamping down on irresponsible lending and ensuring borrowers only take on mortgages they can afford.

All sounds very sensible, but the proposals have led to warnings that mortgages will become far more expensive, and inaccessible to many.

The new proposals

So what have the FSA actually proposed?

First up is requiring the verification of income on all mortgage applications, bringing to an end self-certification mortgages (though in fairness there haven’t been any self-cert mortgages available for some time).

It will no doubt come as a surprise to many of you that some lenders didn’t check the stated income was correct for all borrowers, but according to the FSA at the end of 2008 a staggering 52% of mortgages went through without the income of the borrower being fully checked. Even today, 43% of mortgages are processed in this fast-track fashion.

The FSA has also suggested there should be extra affordability tests for all mortgages to ensure a borrower is only taking on what they can afford, as well as making the lender ultimately responsible for assessing a borrower’s ability to pay.

So why have such seemingly obvious changes got so many people within the mortgage market so upset?

More expensive mortgages

Lenders and brokers have been falling over themselves to warn that these new rules will make mortgages far more expensive.

Because the new affordability checks are pretty stringent – independent proof of income will be necessary, through company records and tax returns – the lenders will need to spend longer on going through that documentation to check its veracity. And of course, for the lenders to perform these extra checks will cost money.

The critics reckon that those additional costs will be passed onto borrowers in the form of higher interest rates on mortgages.

In other words, we’ll be paying for the lenders to be doing what they should have been doing in the first place.

Mortgages out of reach

What’s more, the new affordability tests may go too far, preventing borrowers from being able to access finance.

The FSA wants lenders to assume borrowers will be taking out their mortgage on a capital repayment basis over a term of 25 years. However, plenty of first-time buyers will actually go for a longer term on their first mortgage, to ensure it is affordable – I know I did. To try to apply a one-size fits all approach to something as individual as whether you can afford that specific mortgage is asking for trouble, in my view.

The Council of Mortgage Lenders, the lender trade body, argues that the FSA’s “proposed conservative approach” may trap struggling households in their existing mortgage, eliminating the possibility of remortgaging to a cheaper deal. That option may be the difference between clawing their way out of their money troubles and retaining ownership of the home, or falling deeper and deeper into arrears until the home is repossessed.

Brokers have also argued that lenders have already ramped up their affordability tests since the onset of the credit crunch, making these changes unnecessary.

Vested interests

Undoubtedly there will be comments from readers on this arguing that of course the lenders and brokers don’t like these changes, as they will make their lives harder. And there is certainly an element of that.

The FSA also does at least seem to have its priorities right in wanting to ensure that lenders act more responsibly, and that borrowers who are tempted to take on more than they can handle, or commit fraud – and there have been plenty who have done just that – are prevented from doing so.

However, I do worry that the critics may have a point.

The number of mortgages being approved through 2010 has been pretty modest as it is, and these new rules will only further dent approval levels. And that is not exactly a good thing – the harder it is to get a mortgage, the more bumps in the road there will be when you’re involved with a chain and trying to move up or down the housing ladder. The whole thing could grind to a halt.

That could put downward pressure on house prices. But then again, you may think that’s a good thing – and long overdue.

The importance of advice

Whether you think the FSA is right or wrong, for me, these changes only serve to reinforce why it is so important to take advantage of the services on offer from mortgage brokers.

By using a mortgage broker, you’ll not only get independent advice on which type of mortgage is best for you, but also on how different lenders are likely to look at your application, as you can guarantee there will still be some variances in how strict the criteria is applied from lender to lender.

Mortgage Tips

So, let’s stop them getting away with it. Get to know my six most-hated mortgage traps, and you will never fall victim to your lender’s tricks:

1. Avoid steep arrangement fees

Many (but not all) lenders charge an arrangement fee to cover the cost of setting up your mortgage. Some charge a flat fee which can easily run to £1,000 or more.

In particular, watch out for low interest loans with high arrangement fees. They might look cheap on the surface, but the fee could easily wipe out any savings you might have made by paying a low rate.

Beware of deals that charge a fee as a percentage of the loan. Alliance & Leicester, for example, offer some loans with a 3% product fee. So, if you were borrowing say, £150,000 it would set you back a staggering £4,500.

If you have the option, it’s generally a good idea to stump up for the fee in advance, to avoid paying interest on it during your mortgage term. Read Why you should pay your mortgage fees upfront to find out more.

But it pays to be careful of lenders that insist on charging you in advance, as some will sneakily keep the cash if they reject you for the mortgage later on.

And finally, some mortgages are fee-free, which could help to keep your costs down. Just check the total cost of the deal to make sure you’re getting good value.

Adopt this goal: Sell your home

2. Don’t pay a higher lending charge

This applies if you’re borrowing a high proportion of the property value – or what’s known as a high loan-to-value (or LTV). If you want to borrow say, 90% LTV – in other words, you have a 10% deposit or equity stake in your home – some lenders may ask you to pay a higher lending charge (HLC) to compensate them for the added risk they are taking by lending to you.

HLCs can be very expensive and, in my opinion, totally unnecessary, since higher LTV loans normally charge more interest anyway. My advice would be if you’re going to be charged, choose an alternative deal if at all possible.

3. Beware of mortgage payment holidays

A temporary break from your mortgage repayments might seem like the ideal solution if your finances are becoming overstretched. But the true cost of a mortgage payment holiday can run to a lot more than you might think.

Your capital repayments will be put on hold, but the interest you skip is added to the mortgage, increasing the amount of capital you owe your lender. Each month a payment is missed, the interest charged is higher because your outstanding loan escalates during the break.

Payment holidays are expensive, and shouldn’t be treated as an easy or cost-effective way to rein in your expenditure.

4. Beware of the standard variable rate (SVR)

You’ll normally revert to the SVR once your special rate deal has come to an end.

Some lenders’ SVRs are pretty cheap following a round of base rate cuts. But when the base rate begins to climb again, they could rise rapidly. So, be warned: if you’re on the standard rate at that time, you may need to act quickly to avoid an unwelcome hike in your repayments.

5. Avoid extended early repayment charges (ERCs)

Many mortgage deals come with ERCs if you pay off your mortgage or move to another lender, early. For instance, if you have a five-year fixed rate deal, they will almost certainly be payable for this period.

Unfortunately, some lenders charge ERCs which last even longer than the special rate deal. Avoid these like the plague, or your lender could hold you to ransom. They’ll be able to charge you any rate they choose, but you won’t be able to remortgage to a better deal without triggering the fee.

Also be careful with overpayments. Overpay by too much, and the ERC could rear its ugly head again.

6. Avoid Mortgage Payment Protection Insurance (MPPI)

Of course, this article wouldn’t be complete without a mention of the dreaded MPPI!

This is an insurance policy which covers your monthly mortgage repayments if you’re no longer able to work due to accident, sickness, or unemployment.

Sounds great in theory, but there are several pitfalls. Firstly, for the protection you get, MPPI can be very expensive – particularly if you buy a policy from your lender rather than an independent provider.

Secondly, these policies are riddled with exclusions, and are notoriously difficult to make a successful claim under.

And thirdly, cover normally only lasts for a year regardless of whether you’re well enough to return to work, or you have found a new job following redundancy.

House Prices

In the boom years, I wrote repeatedly of how the economic boom inflating house and share prices in developed nations would end in bust in the late Noughties and linger for most of this decade. I wish, I’d acted a little sooner on my convictions.

Now, with house prices on the rise and above peak levels in patches of London and the South-East, am I beginning to regret that sale? Today I might be able to get 10% extra. That’s annoying. But I have no regrets – I’m thoroughly enjoying the DIY-free merits and cheaper cost of renting.

A year ago, I wrote a blog post estimating house prices were still at least 38% over-priced and predicted a return to the norm… eventually. I also said a reflex short-term recovery in prices, due to rock bottom rates, was a likely scenario [repeated a few weeks later] – it was.

So what next?

House prices remain wildly over-priced: 29% against the long-term relationship with rents, some 50% against the long-term average against wages. They will fall, but probably not this year. Why? Because the drastic anti-recession measures still have plenty of gas in the tank.

A crude survey by property website Zoopla earlier this month concluded that, based on the fact that rates are low and have made repayments dirt cheap, property affordability is at its best level since 2003. So surely prices will rise? Quite possibly, but remember that the survey doesn’t consider that low rates are largely only being enjoyed by those with large amounts of equity in their homes.

The second, far more important point is that when rates rise, that affordability pendulum will swing in an instant. A rise to just 3% would send mortgage costs soaring. A rise to 5% would precipitate an outright collapse.

Rates may not rise this year, and maybe not even next year given the parlous state of the economy. So for now, the property market’s renaissance will continue. The dangerous notion that house prices always rise lives on and will be further reinforced… for now.

Rent Your Spare Room

According to recent research from Abbey (ABBY), the number of homeowners renting out a spare room has soared by 152% in the past 12 months – from 388,000 to 981,000 – in a bid to stave off the recession. This means that 3% of all homeowners in the UK now have at least one lodger.

Average rent generated from a spare room is currently £393 a month, according to Abbey – which translates into a very useful £4,716 extra income each year.

But the benefits don’t stop there. Under the government’s Rent a Room scheme, which is designed to encourage the use of existing accommodation, you can earn up to £4,250 in rental income each year completely tax-free.

Nici Audhlam-Gardiner, director of Abbey mortgages, says: “If you have a spare room that’s just gathering dust, not only will you have some extra money each month by renting it out, but most of it could be tax-free too.”

You don’t have to be a homeowner to take advantage of the Rent a Room scheme – although if you are renting a property, you will have to check your tenancy agreement to make sure you’re allowed to sub-let a room.

And, whether rented or owned, the home will have to be fully furnished and used as your only or main residence.

Also bear in mind that you won’t then be able to offset any expenses against tax, such as the cost of the lodger’s furniture or their part of the heating and lighting.

The Logistics

While the average rent may be just shy of £400 a month, it varies dramatically according to where you live in the UK, the size and state of your property, and the room itself – such as whether it comes with an en-suite bathroom.

However, you will also need to consider what expenses to incorporate in the cost of your rent – will it include bills, broadband and telephone, for example?

Matt Hutchinson, spokesperson for spareroom.co.uk, a website that matches lodgers with suitable rooms to rent, says a room that includes all bills tends to add around £75 a month onto the cost, but he adds that this will also depend on the circumstances.

He explains: “If a single person lets a room, for example, they’ll lose their single occupancy discount on council tax, so they’ll need to factor that cost in too.”

At least these days finding a lodger doesn’t mean limiting an advert to 20 words and waiting for the next print run of the local newspaper. Instead, there are a whole host of websites that, rather like online dating services, match together profiles of homeowners and lodgers.

As well as myspareroom.co.uk, check out roombuddies.com, easyroommate.co.uk and gumtree.com.

But bear in mind that, while you may be able to advertise your room for free, some sites will charge you for contacting a potential applicant.

Remember too that lodgers don’t have to be full-time fixtures in your home. Websites such as mondaytofriday.com put landlords in touch with lodgers who are only looking for somewhere to rest their heads during the working week.

Director of the site, Judy Niner, says: “It’s the perfect arrangement for landlords looking to generate some tax-free income but who want to keep their home as their own.”

Because of the absence of your lodger at weekends, Niner recommends charging “between four-and five-sevenths” of full-time lodging costs. “If it’s any more expensive than this, you simply won’t be able to rent the room,” she says.

If you live near a college or university you could also consider renting a room to a student during term time. In this case, contact the local university and ask about the best means of advertising. It could be through the student union or on the university’s website.

Allow plenty of time before the start of the new term to put up your advert, as competition could be tough.

Who’s in your home?

So what exactly does this homework entail? It’s a good idea to start with a basic application form. This can be downloaded for free from websites such as landlordzone.co.uk.

“This form will detail things like an applicant’s current employment, previous address and any vehicle they will be keeping at the property,” says managing director of the site, Tom Entwistle. “It also requires proof of identity such as a passport or driving licence.”

When you are comfortable that your lodger is who they say they are, it’s time to find out if they are reliable payers. Once you have their signed permission – which can also be obtained from the application form – you can run an online credit search against their name.

A basic check from online service tenantverify.co.uk, at a cost of £15.88, will reveal an individual’s credit score, outstanding debts, whether there are any County Court judgements filed against them and their places of residence over the last six years.

Make sure you also ask for at least two references from any prospective tenant, ideally from a previous landlord and current employer.

The nitty gritty

“We’d advise you to be as clear as you can be from the outset to avoid any future misunderstandings,” says Hutchinson. You can do this with a straightforward lodger agreement or house share agreement, available either online from landlordzone.co.uk or from a legal publisher such as LawPack.

This contract is slightly different to the assured shorthold tenancy agreement used by ‘remote’ buy-to-let landlords as it does not include a security of tenure. In other words, the lodger has no legal right to stay in your home.

However, the law does state that live-in landlords should provide a ‘reasonable notice period’. This is usually interpreted as 30 days but is fundamentally contractual.

So, as long as the stated time period has been agreed by both parties, it will not be over-ruled by statutory law – even in the highly unlikely event that things get as far as ending up in a courtroom.

Bear in mind that notice periods can work both for and against you. For example, if you and your lodger experience a catastrophic clash of personalities – yet you have stated a months’ notice to ensure you can pay the mortgage – they have every right to stay for that period.

It is also wise to insist that the agreed rent is paid by direct debit. “Dealing with money can put a strain on any relationship,” warns Hutchinson, “so it’s a lot easier to get the rent paid automatically than to have to ask for it over the breakfast table.”

It’s common practice to take a deposit from a lodger to protect against damage and breakages – one month’s rent is typical. As you are not using an assured shorthold tenancy agreement, the funds won’t have to be held in the government-backed tenancy deposit protection scheme.

Still, it’s wise to keep the funds in a separate account that you don’t touch and to provide your lodger with a signed receipt.

Insurance

“It may not even result in higher premiums but extras like accidental damage cover may not be valid for additional household residents,” explains Malcolm Tarling, spokesperson for the Association of British Insurers.

Though your lodger will not need to worry about buildings insurance – after all it’s your bricks and mortar – they will need to take out their own separate contents cover if they want their belongings protected against damage or burglary.

What have you missed?

Food: It would be unusual to share the entire contents of the fridge with your lodger but what about staple items like milk and bread? Agree on a policy upfront to avoid annoyance and frustration.

Cleaning: Unless you have a cleaner, make sure you both know who is responsible for cleaning, how often and for which rooms.

Access to rooms: Find out if your lodger minds if you go into their room, even if it’s to shut a window or put a pile of washing on their bed – and vice versa.

Guests: This can be a real sticking point and one that is crucial to get straight from the start. If your lodger has a partner, can they stay overnight – and how many times in a week? You don’t want to charge for one lodger and end up with two.

In and out times: Set down expectations around what time your lodger can come in at night. This will depend on the kind of sleeper you are and how comfortable you are with comings and goings in the wee hours.

Time away from the house: If your lodger takes a month sabbatical, will they still expect to pay the rent? People have different ideas about the same thing so find out from the offset. Bathrooms: If you are sharing a bathroom, organise a rough schedule from the start. If you are all working, you don’t want to find that your lodger has a bath between 8am and 9am every day.

Avoid Estate Agent Fees

The iSold.com site is being run by Britain’s largest independent estate agent, Spicerhaart, in association with supermarket giant Tesco. It aims to offer a “halfway house” between a traditional high street estate agent and an online service.

It has three home-selling packages, with costs ranging from £999 to £1,299, compared with typical estate agents’ fees of between 1pc and 2pc of the value of the property. People taking out the basic package will be given a valuation of their home and a For Sale sign, and have details of their property drawn up and advertised on Britain’s major property portals, including Rightmove, FindaProperty and Globrix.

There will also be a team in Spicerhaart’s branches who will oversee the sale and help negotiate between buyers and sellers. However, property viewings will be arranged between the seller and potential buyers rather than by the estate agent. Home owners can also opt to pay for extra services, such as an advert in the local newspaper and open house viewings carried out by an estate agent.

ISold has been launched in Bristol, with plans to expand the service to Reading, York, Portsmouth, Southampton, Crawley, London, Kent, Leeds, Manchester and Birmingham in the near future.

The site states: “In the last 10 years a lot of things got easier, simpler and better value. But estate agents certainly haven’t … Until now.”

Tesco is a key distribution partner of the site, and will market it to its customers and through its website, although it will not be involved in running it. The supermarket pulled out of the home selling market in 2007, just weeks after launching its Tesco Property Market site, which helped people to sell their own property for a fee of £199.

The website was deemed to be an estate agency business by the Office of Fair Trading, which led to requirements for Tesco to provide services it had not planned to offer. As a result, it sold the business on to Spicerhaart.

The group stressed today that iSold was a very different proposition from Tesco Property Market, as it was offering a full estate agency service. The Tesco business had offered home owners a DIY kit to sell their home themselves, including a For Sale sign and information on how to upload photographs of their home on to its website.

Steve Shore, iSold.com spokesman, said: “ISold.com is an innovative new service that gives customers choice about the level of service they require to sell their home. We put buyers and sellers in control of the whole moving process by allowing them to log into their own area of the website, arrange viewings, email each other and view a handy calendar for keeping track of appointments. “All offers and negotiations are carried out by the expert team from iSold.com to ensure that the customer gets the best price achievable.”

Switching Mortgages

It’s been a great year for variable rate borrowers. How lovely to come to the end of a short-term deal (perhaps a fix) only to find that you would revert automatically to a SVR that was probably lower than you had been paying. Indeed it was probably lower than you could move to even if you went through the cost and hassle of remortgaging. You could do nothing, and save money.

But all good times must come to an end and you need to wake up and smell the coffee. It’s time to remortgage – and quickly.

Reason One – Rising SVRs

The Bank of England Base Rate has been at its record low of 0.5% since March 2009, and many SVRs have indeed been luxuriously low. However, not all have stayed at rock bottom prices.

In fact during the period that the Base Rate has remained steadfastly locked at 0.5%, lenders have begun edging up their SVRs.

First one or two did it – most notably Nationwide last April, which launched a new, higher SVR for new borrowers, because its old one had a price guarantee so good it was costing the lender too much. Then the rise in SVRs really began in earnest in the New Year, with a handful of lenders raising their rates. Skipton Building Society proved the most high profile to sock it to existing borrowers, breaking its price guarantee to hike its vanilla mortgage rate from 3.5% to 4.95%.

Some lenders have even started charging a whopping 12.55% on their SVR! If your lender has upped its SVR, you probably already realise it’s time to find a more competitive mortgage. If not, get out now before it does, because more are expected to raise their default mortgage rates this year.

Reason Two – Fixed rates won’t go lower

Another theme of 2010, and this time a very welcome one, is the cutting of fixed rates.

There are now plenty of two-year fixed mortgages on offer under 3.5% if you’ve got the necessary deposit, and even five-year fixes are now sub-5%. Many experts think that they might have bottomed out and it could be time to take advantage of locking into a low rate now.

One theory is that the uncertain political landscape makes investors jittery, markets wobbly and sends gilt yields skywards which, in turn, pushes up swap rates and therefore fixed rates.
It’s a complicated process but uncertainty over the UK’s massive budget deficit, and which party could be in power to tackle it, could mean fixed rates will rise later this year. And that’s aside from the obvious interest rate risk if you are on a variable deal.

Has there ever been a better time to lock in?

• Adopt this goal: Cut your mortgage costs and pay off your mortgage early

Reason Three – Switch and overpay

By switching to a home loan that allows you to overpay a greater amount without penalty, you could do yourself a massive mortgage favour. Overpaying is one of the best things you can do, as it reduces your debt and reduces the interest you will incur.

Cumulatively this process can save you thousands of pounds and years off your mortgage term.

Even if you only overpay for a year or two you will still shift your debt more quickly than you would otherwise. This will help to reduce your loan-to-value ratio, so when you come to remortgage again you can get an even more competitive deal. If your current lender is restrictive about how much you can overpay, move to one that is flexible.

An offset mortgage usually offers you unlimited overpayments, for example, and you can still get access to your money if you need it, as I explain in Homeowners: maximise your savings.

Reason Four – Funding gap will mean less choice

There is an enormous funding problem facing the UK mortgage market.

What’s new, you might ask? But in fact, despite lender funds being severely restricted by the credit crunch, the government stepped in to help out the industry to the tune of £300bn – things could have been a lot worse.

Now it’s payback time and the Council of Mortgage Lenders has already admitted that lenders won’t be able to meet current timescales to repay this support between 2011 and 2014. Plus it highlighted that the private sector will not be able to plug the gap left by the withdrawal of the Special Liquidity Scheme and Credit Guarantee Scheme.

In other words, lenders are going to find it tough to repay their massive debts and find the funds to lend us mortgages, unless they get a lot more help from whoever is in government after the election.

We might look back on 2010 as the year we were relatively swamped with great mortgage deals.

Reason Five – Save money

It sounds unlikely given many lenders’ low SVRs, but a combination of some of the default rates rising and new deals being cut means that many borrowers can actually save money by moving off SVR and onto a new tracker or fixed deal.

This is most true for those with a large deposit, as 60% and 75% LTV deals are priced very keenly at the moment and there are definite savings to be had. With sub-2% variable rates and fixes around the 3% mark, it could be that your lender’s SVR doesn’t look so cheap after all. So why not switch and save now?

Mortgages Becoming Easier To Obtain

This has mainly revolved around edging down certain loan-to-value thresholds – in other words, giving those with smaller deposits access to the best deals.

The house price effect…

However, while this is good news for those who had been struggling to secure a decent mortgage, it may not be as simple as it sounds. A loan to value is effectively the proportion of your property value that has a loan secured against it. The smaller this percentage figure, the lower risk a lender perceives you to be, and cheaper the rate you will be offered.

A loan to value hinges on more than just how much of the mortgage debt you have managed to pay off. The other half of the equation is the market value of your home. And this, of course, can go down as well as up. Having slumped by as much as 25% after the credit crunch, average house prices started to pick up again midway through last year and – up until recently – had been steadily climbing.

Last month, however, marked the first time for the best part of a year that house prices slipped, according to both of the most recognised house price indices. Nationwide reported average house price falls of 1% during February, while Halifax returned falls of 1.5%, taking average house price down to £161,320 and £166,587 respectively.

Oiling the lending wheels

But, rather than cause for alarm, one month of house price falls is probably more of an indicator of the beginnings of a static housing market for 2010 – something that most experts are forecasting. And meanwhile, lenders have been increasingly opting to ‘meet homeowners in the middle’ by loosening the purse strings.

Currently, however, this favours borrowers who can still lay their hands on a 15% deposit. For example, First Direct recently launched a market-leading tracker mortgage available at 85% loan to value. The rate is pegged at 3.49% above base rate for the life of the loan. This means the current pay rate is 3.99%. There is also a £495 fee.

Mortgage expert at the bank, Jimmy Kelly, said: “We want to help people who can’t quite reach a 20% deposit for their new mortgage but have more than 10% saved – as there are few products in this category.”

The number is growing though. Last week Yorkshire Building Society reduced the rate of its two-year tracker – also available at 85% loan to value – by a significant 0.60%. The new lower rate of 3.79% will save a customer with a £150,000 repayment mortgage £1,200 in interest payments over the two-year term when compared to the previous rate of 4.39%, says the society. The fee is also reasonable at £495.

Fortune favours the equity rich

However, while rumblings of movement may be starting to occur in the 80% and 85% loan-to-value brackets, the very cheapest deals are still reserved for those with maximum deposits.

Hannah-Mercedes Skenfield, moneysupermarket.com’s mortgage manager, said: “It’s true we have seen signs of lenders relaxing their criteria but it’s still within fairly conservative loan to value parameters. Borrowers with only a 10% deposit will still have to pay a lot more and, if you have a deposit of less than this, it’s still the case that you won’t qualify for any mortgage at all.”

Top deals at your loan to value

So what are the best deals for your own loan to value as it stands? If you are lucky enough to have the full 40% deposit, that most lenders set their best stock by, look at Yorkshire Building Society’s two-year fix priced at 3.09%. You’ll need to factor in the above-average £1,196 fee though.

Borrowers who can afford to leave themselves open to a variable deal may be interested in HSBC’s new two-year discount. Available from Monday 15 March, the deal is payable at just 1.99% for customers with a 40% deposit and comes with a booking fee of £999.

You will only need a 35% deposit to qualify for the best tracker, which comes courtesy of First Direct. The deal is pegged at 1.89% above base resulting in a current pay rate of 2.39% – and, best of all, comes with a relatively small £499 fee.

If you can still muster a 25% deposit post the housing crash, the Co-operative Bank is offering a 3.19% fix until June 2012 with a £999 fee, while Market Harborough Building Society has the best tracker priced at 2.48% for two years. However, watch out for the whopping £1,835 fee attached to this deal.

Borrowers with a 15% deposit are the group that benefit most from relaxed criteria, now having both First Direct’s 3.99% lifetime tracker and Yorkshire’s 3.79% fixed rate deals at their disposal.

Sadly, borrowers with a 10% deposit will still pay disproportionately more for their mortgage deal. The best rate available on fixed rate terms is a five-year deal from Yorkshire Bank payable at 6.69% with a £499 fee. On a variable basis Lloyds TSB is offering a tracker for the life of the loan currently payable at 5.49% – though the fee is a hefty £1,494.

Silver lining…

But at least if house prices remain in freeze frame for 2010, this year’s first-timers can finally throw in the towel on the game of ‘house price catch up’ when sensibly trying to save for the biggest deposit possible.

And existing homeowners should look to take advantage of the low interest rate environment and overpay on their mortgage if at all possible. Given you can’t rely on house price increases to boost the amount of equity you have in your home, paying down your debt more quickly is the best alternative.

Financial Services Authority

The Financial Services Authority (FSA) had said in October it planned to force mortgage lenders to check the income of all borrowers, effectively banning self-certified mortgages.

Such loans became known as liar loans after they were widely abused during the housing bubble and were blamed for helping fuel bad debt problems at the heart of the financial crisis.

But the watchdog said in a feedback statement Tuesday that unnamed “large lenders” had opposed the proposal.

“Objections were raised mainly by large lenders, who argued that the proposals would impact negatively on the self-employed, which will trigger an increased usage of fraudulent income documentation,” the watchdog said, adding some said it would also increase administrative costs.

“Those that supported the proposal argued everyone should be able to verify income, even if the income sources are diverse or the income streams irregular,” the FSA said, adding its proposals were supported by consumer bodies, small lenders and intermediaries.

At the height of the housing boom in July 2007, self-cert loans accounted for 23 percent of Britain’s prime residential home loans, though they are now provided by just one lender.

Most respondents to the FSA’s proposals also argued against a blanket ban on the sale of products with high-risk characteristics, with lenders saying “toxic” lending was only undertaken by a minority of providers who have since pulled out of the market.

The FSA had stopped short in October of capping loan-to-property price ratios that could have banned mortgages such as the 125 percent loan offered by Northern Rock before its near-collapse.

Following October’s mortgage market review, the FSA has already published a consultation paper on issues including arrears and plans a policy statement for June.

It will look again at affordability and income verification — including the issue of self-cert mortgages — in the third quarter

The housing market has come to a virtual standstill following the end of the stamp duty holiday. January saw the tax threshold fall from £175,000 back to £125,000 – meaning most buyers will have to hand over at least 1% of their purchase price to the taxman.

As a result, December saw buyers rush to complete purchases, as shown by the massive 32% fall in total mortgage lending in January recorded by industry body the Council of Mortgage Lenders.

Throw in continued uncertainty around the future direction of house prices – with this month seeing the first price fall in nine months according to Nationwide – and it’s clear that homeowners and would-be buyers alike face some tough decisions when it comes to their mortgages.

This faltering housing market also spells bad news for lenders – and they’ve responded by slashing the rates on many fixed-rate mortgage deals. Figures from financial analysts Moneyfacts show that the average fixed-rate deal for a buyer with 25% equity or deposit is now 4.27% – its lowest level since July 2009.

Of course, not all of us have the luxury of such a high level of equity – and with interest rates still at an all-time low of 0.5%, do you really need to pay the extra premium a fixed-rate mortgage gives you for the privilege of set, regular monthly repayments? Well, it depends on your circumstances and financial confidence…

What to consider

First of all, it pays to do a little research. None of us – not even us writers here at lovemoney.com – have a financial crystal ball, but it’s still worth keeping an eye on the various interest rate predictions in the news. The Bank of England base rate has remained at 0.5% for the past 11 months – but a consensus is growing that rates will soon start to creep up slowly.

Do bear in mind, however, that base rate isn’t the be all and end all. The cost of your mortgage is also determined by other factors, including the rate banks charge one another for borrowing, price inflation and lenders’ profit margins.

The other thing to look out for is the various fees that come attached with your mortgage – particularly with regard to early repayment penalties. For example, you may opt to follow the base rate while it remains low before making the switch to a fixed-rate deal – but any savings you make could be swiped out by paying for the privilege of leaving your mortgage. It’s hard work, admittedly, but keep a sharp eye out for all terms and conditions.

What the expert says

Leading mortgage broker Ray Boulger suggests most of us should track for the moment. He says: “The economic arguments suggest taking a tracker mortgage because the UK economy in such a mess that interest rates will need to be kept low for several years to support the economy – yet one caveat is the political risk.

“If we have a change of government, trackers offer the best value because the gap between tracker rates and longer term fixed rates of about 2% is too high, but anyone who expects a hung parliament or a Labour victory should think about battening down the hatches and taking a fixed rate for at least 5 years.”

The best tracker deals

First Direct has launched a market-leading tracker mortgage at 3.99% for borrowers with deposits of at least 15%. The mortgage tracks the base rate plus 3.49% for the life of the loan and has a £499 arrangement fee. With a larger 35% deposit, you can get 1.89% above base rate – which currently works out at 2.39%.

Those with bigger deposits can save similar sums elsewhere. HSBC has a worthwhile deal for buyers with 40% to put down – the HSBC Base +2.09 deal is priced at 2.59% for as long as interest rates remain at 0.5% – then at 2.09% above the base rate. There’s no early repayment charge, but it does come with a £999 arrangement fee.

Finally, those in the middle should look to the Woolwich. The mortgage giant offers a rate of 2.49% above base rate for the life of the mortgage on deposits of 25% or more – the deal comes with a £999 arrangement fee.

Another worthwhile offer is the NatWest Base +2.99% deal – it’s priced at 3.49% until March 2012 and is available to borrowers with deposits of 20% or more. There is an early repayment charge during the first year, and a lower (£499) arrangement fee.

Fixed-rate best buys

There are some worthwhile fixed-rate deals on the market priced around 3.5% for borrowers with larger deposits or homeowners with equity. The best rates are available on two year fixes.

A worthwhile deal is available from First Direct – its two-year deal is fixed at 3.29% for the entire period and it comes with below-average fees of £499 for booking and arrangement. Another deal comes from Northern Rock – the state-owned bank’s two-year deal is fixed at 3.59% before April 1, before reverting to 4.79%. The two year cost in real terms is 4.6% and it requires a 30% deposit.

The Co-operative Financial Services, which offers mortgages through both The Co-operative and Britannia, has just launched a 3.19% two-year fix, for those with a 25% deposit. But beware the £999 fee.

For buyers with smaller deposits, Newcastle Building Society has a two-year fixed-rate deal priced at 5.95% with a low arrangement fee of £694 available with deposits of 10% or more. Existing Santander current account customers can also get a 90% three-year fix at 5.99%.

If you do want to fix for the longer term, First Direct’s three-year fix is pegged at 4.19% but comes with lower fees of £199 and £299 respectively. The best-priced five year fixes are available from the Mansfield Building Society at 4.75% and ING Direct at 4.88% – both require deposits of 25% or more.