Property values fall below last years for the first time

Nationwide's house price index reports a fall in value of 1.1% in April, which in addition to the falls of the last six months, eats up any equity that the average home has increased by in the past 12 months, leaving the final value at 1% lower than this time last year.

Charcol's Katie Tucker comments: "The fall in property values is a direct result of the lack of affordable mortgage funding: mortgage approvals of all types are now a quarter less than last year. New house purchase mortgage approvals specifically are down a daunting 44% year on year, and these lost movers are the first time buyers with small deposits, the borrowers with previous credit problems, and the buy to let landlords with minimal rental income: they have been thrown out of the melting pot of buyers."

Tucker explains: "The lowest rung of the ladder has broken, unfortunately taking out the buyers that allow 2nd time movers to step up. Between fuel prices, utility prices and food costs, the cost of living has soared in the past year, and the people arranging new or replacement mortgages could be the worst hit unless they take good advice on rates, and how to structure repayments."

Tucker continues: "Salaries have increased 53% in the last ten years, but the average monthly mortgage payments have increased 172% this last decade. When lower demand brings down property value like this, people perceive their wealth to have fallen, which causes longer term problems to the consumer-dependent economy, not to mention a very real sense of insecurity. However, the economy as a whole is strong, growth of GDP is a priority for the MPC, and unlike during the early nineties, when bank rate policy was straight-jacketed by the Exchange Rate Mechanism, we are unlikely to fall into such a recession."

What products are available now?

Tucker continues: "Despite the government's best efforts with their £50bn bond exchange, LIBOR has fallen a measly 0.06 to 5.86%, still some 0.86% above official Bank rate. The effects of this incentive will be slow, particularly as any lenders able to offer better rates will have to do so gingerly and in careful timing with each other, to avoid a flood of business. Aside from the flurry of changes across the board by HBOS on Friday, which left their rates some 0.6% higher, mortgage withdrawals and rate hikes have quietened, although with the eerie feeling of the calm before another storm. Nationwide and Abbey no longer offer 95% mortgages, now demanding a 10% minimum deposit, and Coventry Building Society has increased all rates by 0.2% today. Bradford and Bingley has a two year fixed rate available for those with a 5% deposit, at 5.59% with a £999 fee and crucially, no Higher Lending Charge.

"Withdrawal of rates continue to come with almost no notice, so using a broker, who often has a few hours heads-up on the withdrawals, adds a further layer of defence against the rapidly disappearing rates, as they can contact applicants who have outstanding quotes."