A leading property group released figured yesterday showing a rise in the number of mortgage applications in April.

Council of Mortgage Lenders (CML) claimed that close to 57,000 loans were approved in April a rise of nine per cent from the previous month and the highest figure since December 2007.

This figure might be a sign of a turnaround or it could just be a reprieve for a market that has been in a steep decline for most of the year.

It seems that as soon as talk turns to more positive economic news, more data is release showing the economy is a long way from getting out of trouble.

CML has indicated that there would probably be further hurt before any real growth was established.

“Monthly house purchase lending volumes continue to be lower than levels and there will be a further weakening in coming months as recent approvals data has shown,” CML director general Michael Coogan said.

Borrowers are confident that increasing inflationary pressure will force the Bank of England to raise interest rates so borrowers are trying to lock in a fixed rate.

Higher interest rates mean cheaper houses; better a lower principle than a lower interest rate.

Now might just be the time for first homebuyers to wait because further falls in housing prices will put buyers in a better position even with a higher interest rate. But if you are already in the property market, then refinancing is definitely an option worth considering.

A fall in house prices could see potential first-home buyers finally able to get a foot in the door.

According to housing analysts Hometrack, a quarter of young working households in the UK are unable to afford to enter the property market.

The worst affected areas are London and the South West with both have around 40 per cent of young working households unable to afford to enter the property market.

However, there is light at the end of the tunnel with Hometrack revealing that the expected drop in housing prices is allowing some of these young working families to get off the rent cycle.

Hometrack director of research Richard Donnell said until such time as mortgage rates start to fall then lower house prices will be the only real driver of improved affordability for first-time buyers.

High interest rates are deterring buyers now, but as prices fall some will dip their toes in the market.

There is a lot of talk about higher interest rates hurting homeowners, but it presents a perfect opportunity to enter the market.

It is better to buy with a high interest rate and get a house at a reduced price, rather than when interest rates are low and housing prices are at the premium. That is when borrowers get into trouble.

By having a lower principle you pay substantially less over the life of the loan and month to month repayments are also reduced as interest rates inevitably decline.

Low interest rates are good in the short term but they do go up and this puts strain on budgets.

The economic downturn, which began in late 2007, looks to be drawing out into 2009 and beyond.

Indicators are showing a laboured but growing economy, more akin to a cooling economy rather than a total freezing.

It is views shared by many analysts who are now expect higher energy prices and inflation to limit growth.

The Council of Mortgage Lenders (CML) has added to the pessimistic view by forecasting a continued decline in housing prices in 2008 as buyer delay purchases.

According to the CML it expects a decline in housing prices in 2008 of around seven per cent.

“In the wake of the credit crunch, 2008 will be remembered as a very weak year in the housing market,” CML director general Michael Coogan said. 

But our forecasts assume some indirect benefits from the Bank of England special liquidity scheme beginning to have an effect in the mortgage market in the later part of the year,” he said.

It seems that times are changing and more people are expecting a long and slow recovery.

The CML’s last forecast predicted a return to growth towards the end of 2008.

The credit crisis was the catalyst for the current woes but it is the ongoing threat of high inflation that will keep a lid firmly on any recovery.

The inflation risk is enormous and no central bank can afford to sit back and wait for the economy to turn around with low interest rates.

Interest will rise and rise sharply.

No amount of liquidity will boost lending when customers are faceing rising interest rates and inflated petrol prices.

“The worst is over.”  It is a cry coming out of the US at the moment as mortgage data shows signs of support, consumer spending is up and the employment rate improves.

Many people are now asking if the slowdown was really all that bad.

True, there has been a credit crisis and the financials have been hit hard, but other sectors such as IT and energy have held up in the face of the slowdown.

IT is usually the first to suffer any loss in business confidence as businesses scale back spending in that area. Yet revenue of most IT companies is maintaining strength.

Energy prices also dive because of diminished demand, but oil hit records this week.

Finally there is the US growth; technically two quarters of negative growth constitutes a recession.

The US is yet to register one period of negative growth in this latest slowdown.

Will it happen? Probably not…the US Federal Reserve’s emergency relief will filter through the market sooner rather than late.

There might be one quarter of contraction but not two.

This might not be the best news for the UK with energy prices coming under further pressure and a central bank looking over its shoulder at rising inflation.

We might have a consumer driven recovery so interest rates will most likely be under pressure for some time yet.

Chancellor Alistair Darling wants banks to help easy the credit crunch by passing on rate cuts, but banks will try to resist any weakness to their bottom line.

Historically banks have always been held up as institutions and safe sharemarket investments.

They were a safe haven and immune from financial trouble as they controlled the money. But if this credit crunch has proved anything it is that banks are like any other business.

They are exposed to slowdowns and credit troubles, not only does it increase the levels of bad debt on their book, but it also increases cost with credit markets tightening.

Need we be reminded of the long lines of customers abandoning Northern Rock late last year?

With these conditions there is growing economic pressure not to reduce interest rates to maintain profit margins, even with the base rate in decline.

Darling’s ‘request’ for relief for customers from the banks, will hold little weight with the banks that are seeing their ledgers drained.

Some banks have reduced their interest rate after the Bank of England reduced the interest rate by 0.25 per cent, from 5.25 per cent down to 5 per cent.

But the cost to homebuyers wanting to establish a mortgage has risen, it is the case of giving with one hand and taking with the other.

Darling comments were definitely a warning to banks, after also mentioning the rescue money that the Bank of England and the HM Treasury supplied to stressed banks and financial institutions was a show of goodwill from the government.

But these words are falling on deaf ears as all the attention turns to the US market that shows all the signs of being in a recession, and the banks asking each other how bad this slowdown will hit.

Everyone is feeling the bite of a slowing economy; even banks are finding it tough as funds start to dry up.

According to the Council of Mortgage Lenders (CML) gross lending declined in February to £24 billion from £25.6 billion in January.

This has led many lenders to reduce their product ranges, increase their mortgage prices and, in some cases, to reduce their lending capacity,” CML direct general Michael Coogan said.

Banks are facing higher interest rates to fund their own loan book.

This cost is passed on to the customer.  This begs the question, what influence does the Treasury have against the raging tide of the free market?

The answer is not much.

A bank is like any other business, it must pass costs to its customers to maintain profitability. A bank that doesn’t will suffer in the current economic climate of low consumer confidence and high borrowing costs.

We are seeing the effect of high borrowing costs in other countries. In the US the Reserve Bank is lowering the interest rate but banks cannot follow suit and offer customers the same savings because of the cost of borrowing.

To combat this problem the Reserve Bank is offering cash to US banks to help sure-up their balance sheets.

Central banks are being marginalized by the power of the free market.

So this raises another question. Will higher base rates from the Bank of England help curb the inflation rate? Only time will tell…

A peak business group has looked into its crystal ball about economic growth and it has found some numbers.

While some analysts are laying low until more substantial data about the direction of the economy is revealed , CBI has claimed that the Treasury’s forecast of Britain’s economic growth in 2008 of between 2.25 and 2.75 per cent was optimistic and growth was more likely to be around 1.8 per cent.

CBI went further in its analysis stating that inflation was likely to top 3.2 per cent before being reeled in, sparking a reduction in interest rates in the second and fourth quarters of this year reaching a base rate of 4.5 per cent.

The group also stated that low economic growth is likely to remain throughout 2009.

Do you think this forecast is specific enough? It is amazing what can be stated when the forecasters are not held accountable.

The Treasury would be held accountable on its forecasts.

The CBI forecast is just one of the many forecasts available on economic conditions in Britain, there are many business and financial groups gazing into the crystal ball at the moment and there is very little consensus.

Some are claiming the worst is over, while others are still talking doom and gloom.

No wonder the average investor is becoming confused.

It isn’t helped by the mixed signals coming from market data.

Employment is strong, but business investment and confidence is down, also the economy is contracting but inflation pressure is up.

When will it end?

The latest inflation figure released by the Office of National Statistics suggests Britain’s homeowners might not receive any interest rate cuts in the near future.

The latest figures showed inflation at 2.5 per cent.  Well above the Bank of England’s comfort zone of 2 per cent.

This is the second rise in as many months with the figure rising from 2.1 to 2.2 per cent in February.

Inflation is notoriously hard to manage with the trends difficult to reverse and although there is a new method of calculating inflation by the Office of National Statistics it is clear that inflation is on an upward move.

If the Bank of England starts rising interest rates to stem inflation there is a real possibility interest rates will be increased several times before inflation is back under control, particularly within an environment of rising energy costs.

In economic conditions like these it is important for homeowners to recalculate their home loans and determine what they can comfortably afford if rates increase.

This is a pattern that is forming across most of the industrialized countries at the moment.

As rates rise more and more homeowners are suffering from mortgage stress.

Buyers should calculate their repayments at 3 to 4 per cent above current interest rate levels to ensure they will be able to maintain repayments when the official rate inevitably rises.

Consumer confidence in Britain is on the wane according to a study by one of the county’s leading retail organisations.

The British Retail Consortium reported that retail sales were slowing. 

According to the report, sales roses by 1.5 per cent last month, this compares to a rise of 3.3 per cent in February 2006.

People were still shopping, but price was an increasingly important factor for most consumers.

“Shoppers are still very price-conscious and reluctant to splash out on major purchases, so discounting was still needed to tempt customers to buy,” the consortium reported.

Even with strong food sales the slowdown in consumer confidence should put downward pressure on inflation.

The Bank of England’s Monetary Policy Committee (MPC) has played a conservative hand lately.

It has maintaining interest rates to see how the fallout from the US affects the domestic economy.

But with consumer spending down and confidence falling, it should be enough for the MPC to consider dropping rates.

There is increasing instability however with increasing wage pressures and high energy prices rising costs.

For the homeowner it might be time to lock in an interest rate, or ensure that you have enough income to cover any interest rate increases.

I’m appalled. Apparently, half of all mortgage seekers have no idea what’s been happening recently with interest rates.

According to mortgages site MortgageSorter.co.uk, a horrifying 48 per cent of its users didn’t realise rates went up last month.

The Bank of England has made four base rate increases since last August – adding around £90 a month to the cost of a £150,000 variable rate repayment loan – and it’s due to announce its latest decision on Thursday.

How can so many people who are about to commit to the biggest debt of their lives have absolutely no idea about what’s been happening to interest costs?

When the site asked “How has the recent rate rise affected you?”, exactly 50 per cent said they were “very” or “a little” concerned about the impact on their mortgage payments.

But 48 per cent said they “didn’t realise there was a rate rise” , while the remaining 2 per cent said they “didn’t know” how it would affect them.

Yet, as MortgageSorter founder Edward Parry points out: “Over the course of a 25-year £150,000 repayment mortgage, even a single 0.25 percentage point rise could cost them £6,750.

“And the four rises we’ve had recently could add £27,000 to their interest bill – that’s something no one can afford to ignore.”

He goes on to say: “But if borrowers aren’t clear on how much a mortgage could cost them, how can they be sure they’re making the right loan choices?”

Quite.