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.

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.

Halifax, the UK’s largest mortgage lender, has turned its attention to borrowers with significant deposits.

To draw in this market Halifax is offering discount rates for borrows with capital.  The best rate is reserved for borrowers with 25 per cent or more of the property value.

For struggling first-home buyers looking to get into the market with low deposits, there are even tighter rules which attracts a higher interest rate.

It was not unexpected, with a tight liquidity market and greater value put on low-risk borrowers, there is a growing trend for lenders to look at the quality of their loan books rather than quantity.

Halifax’s new mortgage packages is only one example of how the credit crisis gripping the global markets will affect the UK credit market in the long term.

In the short term these new lending packages will contribute to a slowdown in mortgage approvals and overall housing market weakness.

However in the long term the tougher credit rules will strengthen the credit market and bring renewed confidence to the domestic economy.

The question is who has to hurt now, for a brighter economic future. The answer seems to be struggling homeowners who are already sailing hard into the wind of high household debt and raising costs, and renters who are facing higher rents and major hurdles to buy into the housing market.

These two large groups are usually the first to suffer in any period of economic slowdown.

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…

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.

If you’re one of the eight million Britons planning to buy a car in the next six months, don’t just sign up for your dealer or bank’s finance package.

It could add thousands of pounds to your costs.

Samantha Owens, head of personal finance at money search engine Moneyfacts.co.uk, warns: “Get your finance choice wrong and it can prove a costly mistake.”

Some dealers offer interest-free credit and, provided you read every word of the agreement so you know what you’re getting into, it can be a boon.

But, according to personal finance switching site uSwitch.com, the average annual interest rate on dealer finance is 10.76 per cent – and many charge considerably more.

That’s why a low-cost personal loan can be much better value.

These are available from 6.3 per cent – but they too can be far more expensive.

Samantha says: “On a £5,000 loan, the difference between choosing the best and worst loan deal could cost you an extra £861, while the wrong choice on a £10,000 loan could see you out of pocket by more than £2,600 – or, to put it another way, increase the cost of financing your car by a massive 26 per cent.”

That’s why it’s vital to compare rates before committing yourself.

Following on from last week’s post about the 51 different charges that mortgage lenders can slap on unsuspecting borrowers…

I’ve had an email from an eagle-eyed mortgage seeker pointing out that the fees themselves are only part of the problem – the way lenders charge them is frequently designed to fleece us still further.

He writes: “If there are arrangement fees to pay at the beginning of the mortgage, often lenders offer to (or automatically) add these onto the amount borrowed.

“The fees can often be in excess of £1,000 and when borrowed at 5.75 per cent, for instance, over 25 years this can add quite an amount to the cost.”

He’s absolutely right.

If you’re trying to keep expenses down, it can be very tempting to let your lender add its loan arrangement or set-up fee to what you owe.

But once you realise how much this will cost over the long term, you might not be so happy.

Taking his example, a £1,000 fee paid off over 25 years at 5.75 per cent annual interest would actually cost £1,887 – almost double the original amount.

My correspondent asks: “Would it be better to save up or borrow with a short-term loan to cover the fees and some expenses, to save in the long run?”

It certainly would be better to cover these costs up front from savings or, if you can’t manage that, to pay with a low-cost, short-term personal loan.

Mortgage lenders make enough money out of us already – there’s no need to hand them more.

Financial institutions are finding ever more ways to part us from our cash.

Price comparison site Moneysupermarket.com warns: “Brits face running a gauntlet of 112 charges across just five financial products – mortgage, current account, savings product, loan and credit card.”

The site’s managing director Stuart Glendinning adds: “It is unbelievable that five financial products can be the root of so much penalty pain.

“With so many default fees and charges in place, even the most astute consumer can fall foul.”

Mortgages are the worst offenders with a possible 51 different penalty charges, while current accounts have up to 27, credit cards have 19, loans 11 and savings accounts four.

That’s why it’s essential – particularly with mortgages where there are so many ways to get caught out – that you read every word of the small print before you sign on the dotted line.