The recent trend of extremely tight lending criteria from lenders over the past year or so seems to be starting to relax slightly, as many banks and building societies are beginning to increase the maximum loan to value they will allow for homeowner loans to first time buyers, according to new research from Mortgageforce.

This means that first time buyers no longer have to save quite as much money before they buy, or borrow from their parents, thereby making it easier for this vital sector of the housing market to obtain the loan they require, with a lower level of deposit and get themselves established on to the property ladder.

The maximum loan to value being offered by lenders for first time buyers has been increasing slowly for a few months now. This is largely due to the housing market stabilising and property prices starting to increase slightly, thereby reducing the risk to lenders that the borrower will end up in a negative equity situation on their homeowner loan, due to falling house prices.

The average deposit paid by first time buyers for their loan has fallen from 28.6 per cent in June this year, to 25.4 per cent in July and 21.25 per cent during the month of August.

Katie Tucker of Mortgageforce welcomed the news, but warned first time buyers to be careful of variable and discounted rate homeowner loans and mortgages, she said “More generous deals are available, the ongoing stability of house prices reduces the risk of negative equity and repossessions that lenders are keen to avoid, so we should see more accommodating terms from them now.

Although tracker and discount rates are looking very low currently, first time owners or anyone on a restricted budget should consider very carefully whether they could continue to afford their mortgage payments if that rate does increase by a few per cent.”

We have reported on several occasions over the course of the past few months about the increasing problem with loan arrears on people’s homeowner loans and the growing number of repossession cases which have been brought against borrowers with large levels of loan arrears.

But new figures from the Building Societies Association (BSA) have shown that, of all the homeowners who fell into arrears on their loan in the past two years, 97 per cent of these have avoided repossession and managed to remain in their homes and around one third have cleared their loan arrears altogether.

The BSA have also discovered that those borrowers who got in touch with their lender at the first sign of difficulty were most likely to be able to clear their loan arrears quickly and avoid any repossession proceedings. The BSA conducted a survey amongst borrowers who had suffered loan arrears during the past two years, of these 33 per cent had repaid in full, 41 per cent were in the process of repaying the arrears and 12 per cent had come to an arrangement with their lender.

Those borrowers who either contacted their lender at the outset, or took independent financial advice are usually the ones who have now cleared their loan arrears.

Paul Broadhead of the BSA said “The results highlight the importance of borrowers contacting their lender as soon as they face potential payment difficulties and seeking independent advice. Doing so enables the lender to consider all reasonable options to assist the borrower.

Borrowers that have been in arrears believe that their lender has been helpful and has treated them fairly. Those that face payment problems should therefore not be daunted by their arrears, but should take control of the situation by seeking help as soon as they can.”

Most people will have heard the expression “Loan Shark”, but in complete contrast to this type of lender there could now be the new expression of “Loan Dragon”, as James Caan, the star of the TV show “Dragons Den” is about to launch a new loan service in connection with Hitachi Capital, which is specifically designed to help those first time buyers who may be finding it difficult to obtain the homeowner loan they require in order to get themselves on to the housing market.

Currently, the majority of banks and building societies are only prepared to offer homeowner loans and mortgages of up to 75 per cent loan to value and although some lenders will offer higher loan to values than this, in many cases these will charge much higher interest rates.

The loan service from Mr Caan is designed to help bridge the gap between the maximum loan to value and the purchase price of the property and will be offered exclusively through the estate agent Look4aproperty.com. The loans will be offered up to a maximum of £100,000 and may be repaid over a term of two or three years and can be used to help fund additional costs such as legal fees and stamp duty.

Hitachi Capital has agreed to supply £1 billion initially to fund the loans, although it is hoped that this will be extended to allow first time buyers to effectively obtain a loan to value of 95 per cent instead of just 75 per cent, in selected cases. The full details of the loan service are not yet available, but should be released next week in connection with a TV advertising campaign to promote the loans.

Mr Caan said earlier this year that he intended to introduce a service which would help the UK housing market and these loans could provide a much needed and welcome boost for the housing market recovery.

Despite an increase in positive news about the economy and signs of recovery in the housing and homeowner loan markets, a large number of borrowers in the UK are still finding it extremely difficult to be able to keep up with their monthly repayments on their homeowner loans and personal loans and many are struggling with repayments due to unemployment or simply from borrowing too much through loans in the past, when their financial situation was much stronger.

But now a new campaign which has been launched by the Government, to help borrowers in difficulty, has been welcomed by the Council of Mortgage Lenders (CML).

The Government campaign has been launched on a national basis and is designed to support and strengthen the message from banks and building societies to those customers who may be in difficulty with their homeowner loan. The key messages in the campaign are that borrowers should contact their loan provider at the first sign of any problem, so that this may be solved before any loan arrears build up, not to bury their heads in the sand and ignore the problem and don’t be afraid to ask for help by getting in touch with their loan provider.

Michael Coogan of the CML commented on the campaign, he said “We welcome this additional initiative by the government to remind borrowers to speak to their lenders at the earliest possible opportunity and preferably as soon as they think they might miss a payment. Avoiding possession is as important to lenders as it is to borrowers and an early warning will help reduce the risk of this worst case outcome. Most customers who are committed to resolving their problems and working with their lender can successfully manage their way through a period of short term payment difficulty and avoid possession.”

Over the course of the past couple of years, the credit crunch has caused banks and building societies to drastically reduce the number of products they offer for homeowner loans and mortgages, with many lenders withdrawing from the loan market altogether, or limiting their product range to only those borrowers with a perfect credit rating who only require a low loan to value ratio.

As a result of this, more and more individuals are turning to independent financial advisers and loan brokers to help them source the best loan to suit their needs, due to the limited choice and volatile nature of the loan industry at the current time.

However, the choice for intermediaries has also been drastically reduced and it is becoming harder for them to find their clients the loan they actually require. According to new research from the homeowner loan sourcing system for intermediaries, Mortgage Brain, the number of available loan products has fallen significantly.

In August last year, there were a total of 11,544 different loan products for intermediaries and loan brokers to choose from, but at the end of August this year, the figure had fallen to just 2,505, a reduction of 78 per cent in just 12 months and although there are claims that the homeowner loan market is recovering, this figure only increased by 0.2 per cent over the course of last month, with 5 new products becoming available.

Mark Lofthouse of Mortgage Brain was optimistic about the loan market stabilising, he said “August is typically one of the quietest months for the product changes so it is perhaps no surprise that little movement in product availability was seen. We are clearly a long way off where we were this time 12 months ago but the current figures, especially when compared to product activity over the last three months, could be seen as further signs of market stabilisation. Steady as she goes seems to be the theme of the moment though.”