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.

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 days of lower interest rates are numbered.  The inflation beast has been ignored too long and it is going on a rampage.

The booming markets such as China and India are suffering under high inflation the most.  China’s inflation rate is maintaining levels at more than 8 per cent.

And despite the US data yesterday showing that inflation was rising slower than expected, the country is in a period of sharp economic downturn when inflation rates are expected to be under downward pressure.

The upward pressure on inflation is a worldwide phenomenon which could end the era of low interest rates.

In Japan the inflation rate is continuing to push up to levels that could cause a inflationary crisis.

Many economies are starting to question if interest rate management is an effective tool in the fight against inflation.  Considering that small changes have a strong and immediate impact on households with debt but such a delayed and relatively minimal impact on inflation. 

Inflation seems to be moving independently of other economic activity, and the question that many governments are asking their central banks is short of price fixing and wage freezing is there a more effective way of reducing inflation in the economy.

It is a question that may need answering as the Bank of England warns that inflation pressure continues to rise because of the cost of food and energy.

Early this week the UK central bank governor, Mervyn King, said slow growth and rising inflation requires delicate balance from the central bank.

“The monetary policy committee is facing its most difficult challenge yet,” Mr King said.

“We are traveling along a bumpy road as the economy rebalances,” he said.

It might be weak but the UK has experienced economic growth in the first three months of 2008.

Despite the economic slowdown and low consumer confidence the Office of National Statistics has reported that the UK economy grew by 0.4 per cent in the first three months.

The growth was reported in analysing the gross domestic product for the first quarter.

The growth is lower than what was expected by analysts, but GDP is still growing rather than contracting. Many expected the slowdown to be so steep that it would result in negative GDP in the first quarter.

The strength came from the service sector that grew by 0.6 per cent in the quarter. The biggest percentage decline was in mining and quarrying, which fell by 5.2 per cent.

There is a chance that the UK might just avoid a recession, and the lower growth might give the Bank of England the confidence to lower interest rates again next month to keep the balance sheet in the black.

The bank expects this slowdown to have a negative effect on inflation; it has yet to come to fruition with high food and energy prices maintaining pressure on prices.

Do we need a retraction in the economy before inflation starts to slide?

Maybe, but is it really worth the risk.

The smart money is on the Bank of England maintaining the base rate at its current levels, and wait to see if market weakness can reduce the inflation rate.

As we have seen in the last year or so, the market has more impact on inflation than any action by the Bank of England.

It’s official. The Bank of England and those with control over the purse strings are more concerned about the global economic slowdown than rising inflation.

Earlier this week the Bank of England reduced the interest base rate by 0.25 per cent, from 5.25 to 5 per cent.

This is the third rate reduction in a row, and it is a clear message to the market that central bankers are more concerned about the economic slowdown than increasing inflation.

The central bank expects economic growth in Britain to be around 1.5 to 1.75 per cent, but given the brakes that are currently influencing the economy many commentators believe the bank’s growth estimate is optimistic and a recession is unavoidable.

The central bank believes that a weak economy will put breaks on inflation, and the reduction in interest rates will not contribute to inflationary pressure.

“Even if commodity prices remain at their current high levels, inflation should fall back,” a statement released by the bank stated.

“But to ensure that inflation meets the 2% target in the medium term, the Committee needs to balance two risks.”

Only time will tell if the balance will pay off.

The current environment of record commodity prices and rising inflation (2.5 per cent), with a rapidly cooling economy and tight credit markets is putting up new challenges for economists.

How they deal with these market conditions could re-write the rule book on economic management.

The US is already looking at inventive ways to calm the market, and bring balance back to the economy.

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.

It’s getting tougher to find a mortgage.

In the past six months, nearly one in three applicants has been rejected by lenders, who are tightening their loan criteria.

The combination of the US credit crisis, which has seen a record number of poorer mortgage holders default on their payments, and the stock market turmoil and housing market certainty on this side of the Atlantic is making lenders very nervous indeed.

As a result, according to today’s Daily Telegraph, an estimated 372,000 of the 1.2 million people applying for a mortgage between April and September were turned down.

This compares to an estimated 230,000 people – or one in five applicants – who suffered a similar fate in the six months to March.

More and more lenders are deciding whether to lend on the basis of what they think people can afford rather than just their earnings.

That means they’re looking very closely at prospective borrowers’ existing debt levels – and how they’re coping with the repayments.

But that doesn’t mean that if you’re finding it tough to get a mortgage you should grab anything you can get.

Do your best to get your finances in good order before you go looking.

And, if you want to get the best possible deal for your circumstances, it’s more important than ever to enlist the help of an independent expert.

The stock market turmoil is forcing up the interest rates at which banks borrow to fund mortgages.

And that means the rates they charge customers are on the increase too.

Earlier this week, Abbey announced its mortgages were about to get more expensive, and other lenders – including Halifax - look set to follow.

So it’s no surprise to see Woolwich, the mortgage arm of Barclays Bank, promoting a new ten-year fixed-rate deal.

It’s hoping nervous borrowers will flock to fix their rate at 5.59 per cent for the next decade.

Andy Gray, Woolwich’s head of mortgages, says: “With many borrowers coming off cheap fixed-rate deals this autumn, and many people in the market worried about volatility in interest rates, this product offers long-term security.”

But this type of security comes at a cost.

Although, in the current market, 5.59 per cent may appear attractive – especially when the Bank of England’s own base lending rate stands at 5.75 per cent – that could well change in a year or two.

Most experts agree that before too long interest rates will fall, and someone tied in for ten years to a rate that’s no longer competitive will be badly out of pocket.

Sign up for a product like this and there’s no way out though – unless you want to pay a six per cent early repayment penalty.

For someone borrowing £150,000, that would be £9,000 down the drain…

And for most people, that’s far too much to pay – even for long-term security.