Concerns over whether are not the rate cuts by the Bank of England (currently at 4.5%) will eventually trickle down through to high street lenders thus giving a much-needed rate cut for UK homeowners. The UK’s largest mortgage lender, Nationwide Building Society, has confirmed it will be raising its rates on their home loans for a second time in less than 2 weeks.

For those seeking tracker mortgages, since tracker rates follow the BoE’s base rate, Nationwide has revealed it would be adding between 0.24% and 0.6% to the cost of its tracker deals, says the Guardian.co.uk

Last week saw the lender’s tracker mortgage products increase by 0.3% and the smaller your deposit the more you’ll feel the increased price rise as the tracker margin on large loans has gone up by 0.6%.

The Guardian reported, “On the society’s lifetime tracker deal, borrowers with less than 25% to put down will pay a margin 2.03% above the base rate - an increase from the current margin of 1.43%.

On the three-year deal the margin will be increased from 1.49% to 2.08% for borrowers with deposits between 10% and 15%.”

Divisional director of mortgages at Nationwide, Matthew Carter, said: “It is regrettable that we have to increase our tracker rates, but we must take into account ongoing volatility in the wholesale markets and the high cost of funding,” he said.

“These changes will allow us to maintain control of the volume of business the society is attracting, and to continue lending in a responsible and prudent way.”

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September figures show prices falling for the 11 month in a row as the average price now is 12.4% lower than this time last year. In September 2007, the median price for a home in the UK was approximately £185,000 says Nationwide. However with failing banks like Northern Rock leading to tigher lending conditions throughout the year, the credit crunch has stolen £23,000 of the average price.

Despite almost daily bad news about the market, the building society believes the market could be stabilising. According to Fionnuala Earley, chief economist at Nationwide, the past few months have shown a similar rate at which prices are falling and quarterly falls are beginning to settle.

Earley said, “The situation in September 2008 could hardly be more different. House prices are falling, activity has contracted sharply, fewer than 20% of first-time buyers are borrowing above 90%, and the Bank rate has fallen to 5% and is expected to fall to 3.5% by the end of 2009.”

Although Ms Earley is trying to offer optimism in a climate of uncertainty and economic turmoil, she asks: “The big question is how far will prices correct and how long before they begin to recover.”

To make matters worse, data from the Bank of England revealed fewer home loans were approved last month than over the past decade when records first began. Property prices are falling at their fastest pace in over 25 years. For the past few years many doom mongers were cautioning about the property bubble bursting but even they could not have predicting the main cause would be from global economic meltdown.

In August, the amount of mortgage funding came to about £143 million, compared to last year which was approximately £9.135 billion. Some experts are suggesting that lending figures could actually turn negative very soon. Philip Shaw, chief economist at Investec said, “It’s quite possible that given current market conditions that the stockpile of mortgages actually falls back given the continued strains created by the credit crunch”.

Home prices continue to fall as well since first-time buyers are finding the cost of a mortgage plus lending criteria nearly impossible to attain. Hometrack property consultants revealed a consecutive 12-month fall in house prices going into September. These figures suggest the government’s efforts to raise the threshold on stamp duty to be less effective than anticipated.

As a result, consumer confidence is very low. Figures also show repossessions and unemployment on the rise. Over 32,000 Britons queued up at the dole in August, the biggest monthly rise since the recession of 1992.

Despite inflation targets doubling, we are still waiting for the Bank of England to lower the base rate below 5%. This may not be the sole answer to the country’s woes, but experts feel the time is now for the MPC to drop rates.

Chin up, here are a few positive reasons to rejoice:

• First-time buyers will benefit - As house prices fall, housing becomes more affordable for first-time buyers. Recent changes in Stamp Duty, although temporary, could help as long as buy-to-let investors don’t grab the deals first.
• Time for reality – Now that people realise their home’s equity may not be the golden egg for retirement, maybe people will begin to diversify their investments.
• No more guessing at a crash – Prior to current falling house prices many homeowners knew that the incredible property bubble would have to plateau and dip at some point. Well, it’s finally upon us so no more guessing when it might happen.
• Lower divorce rate? – According to research by Savills Finance, couples on the verge are less apt to file for divorce feeling it less affordable than during property boom eras. I suppose that’s logical but still a bit odd.
• Less pressure to move to something bigger – Homeowners may feel less pressure to move to a bigger, better home and instead can focus on improving the one they have with less costly home improvements. Meanwhile, if done right, this should add value to your home.
• Perhaps your neighbourhood hasn’t been hit that bad? - Where you live will determine how much your property value has decreased. It may not be as bad as you think.
• Lower Inheritance Tax – If you recently inherited property, that has been hit by falling house prices, and the total value of your estate falls below £312,000 you could avoid Inheritance Tax.
• Less stamp duty – If you plan on buying a property that’s currently valued at below the £175,000 threshold then you can avoid paying tax. Since we don’t know how long this stamp duty holiday will last, it will definitely help some buyers in the meantime.
• Realistic mortgages – Perhaps one of the biggest lessons to learn is to avoid borrowing sums that are too difficult to repay, especially pre-credit-crunch mortgages like the 125% LTV products. Saving for a deposit is difficult but will help you reduce your monthly mortgage repayments and lower your overall debts borrowed. The last thing any homeowner wants to be stuck with is negative equity.

There are additional reasons to “rejoice” over at the original article however, here we’ve highlighted some of the more important ones.

What do you think? Shall we pop the champagne and celebrate the lessons and opportunities in today’s property market? There’s always a silver lining, right?

However, such a comparison may be a bit pessimistic despite the fact the dust hasn’t even settled yet. The Great Depression was certainly worse with super high unemployment (25%) and thousands of banks collapsing all over the country. People lived in tented communities known as “Hoovervilles”, named after President Hoover, as a form of mockery of the administration at the time.

OK, so the problems in the US and the ripple effect over here in the UK is no picnic, however, so far unemployment in the US is around 6% and a government bail out is planned to deal with the financial problems, this hardly makes it the Great Depression.

We are not out of the financial crisis just yet and if more banking institutions collapse, there is the liklihood other sectors will go down with them. Obviously this would mean more job losses both here and the US.

With the Federal Reserve bailing out AIG last week, the troubled insurer threatened the derivatives market which is used by non-financial companies as a kind of insurance policy. For example, airlines use derivatives to protect themselves against rises in aviation fuel.

A $700 billion bailout package is in talks with the US government and the world is waiting with bated breath as to the whether or not this relief fund will be approved. Time will tell but the US economy is a not headed toward tented communities anytime soon.

Mortgages for would be homebuyers looking to borrow 100% LTV are practically non-existent at totaling only 0.5% of mortgages available in September 2008, says IFAOnline.co.uk.

Prior to the crunch, competition set mortgage rates and great deals could be found at 95% LTV says Darren Cook at Moneyfacts.co.uk. However, now lenders’ primary lending criteria rests on the risk associated with lending to any particular borrower.

Mr Cook goes on to say, “Lenders are focusing much more on risk. They are making less products available to borrowers with a small deposit and making the few that are available much more expensive.”

The knock on effect happens when potential buyers, particularly first-time buyers, are rejected due to poor credit score, insufficient deposit amount, or both. As more borrowers become unable to obtain a mortgage, home sellers are faced with the prospect of having their home remain on the market for longer periods or reducing the asking price.

Lenders are still offering attractive deals, however, in order to take advantage you must be able to front a large deposit. For example, buyers with a deposit of 30% will be privy to a wider range of products to suit their needs.

Without a large deposit you will most likely be seen as “too risky” to lenders. For first-time buyers this could be difficult news to accept. Could this be a blessing in disguise? If 100% mortgages were still readily available in a housing market that continues to decline, many first-time buyers would find themselves possibly with negative equity by the end of the year. If analysts’ predictions are accurate, 2009 could also see house valued continue to decline.

The last thing any homeowner needs is negative equity. So, first-time buyers out there, start saving, work on improving your credit, and perhaps next year you’ll have the funds to make a large deposit, take advantage of lower house prices, and be on the property ladder when the market eventually rebounds, not whilst it’s on the decline.

Banks are ever more reluctant to lend to each other making funds less available to the consumer market.

Recent trends had shown some positive signs of lowered mortgage rates including a number of lenders offering below-5% products. However, after the meltdown of Lehman Brothers and the merger with HBOS and Lloyds, we’re likely to see these deals disappear.

Experts are warning of possible rate increases within the next few weeks and are advising homeowners to remortgage now to get the best deal.