Since October of 2007 house prices in the UK have been falling month on month, and have so far plunged by around 20 percent compared to their peak.

This, coupled with the global credit crunch and financial crisis that has hit the UK, has resulted to radical changes to the mortgage market, with mortgages becoming more expensive, more restricted, and more difficult to obtain. Even though house prices have fallen and interest rates have plunged to an all time low of just 0.5 percent many people are still unable to get a mortgage because lenders are being so strict.

One of the changes that have taken place in the mortgage market is the level of deposit that lenders are demanding for their more affordable mortgage deals. In the past first time buyers were able to obtain 100 percent and even 125 percent mortgages, which meant that they needed no deposit to get a mortgage. However, these days even the 95 percent mortgage is rate, with most lenders demanding a far higher level of deposit from borrowers.

Tumbling house prices have put already struggling lenders in fear of negative equity, and most will not take the risk of offering their best mortgage deals to consumers who do not have a hefty deposit in case continued falls in house prices leave these borrowers in negative equity, whereby they end up owing more on their property than the property is actually worth.

However, a surprise increase in house prices in March has resulted in a couple of lenders, including HSBC, relaxing their mortgage lending rules, and reducing the deposit level required for access to the more affordable mortgage deals.

This is because of recent industry reports that claim that the housing market has bottomed out, and that the only way is up from now on. With the Nationwide Building Society releasing data that shows house prices actually increased in March for the first time since they peaked in 2007, some lenders may be thinking along the lines that the housing market has indeed bottomed out and house prices will now start rising, thus decreasing the risk that they have to take when accepting lower deposits from borrowers.

However, even the Nationwide Building Society, which released the figures, has issued warnings that this may not be the case.

An economist from Nationwide said: “While the rise in prices in March is welcome, it is far too soon to see this as evidence that the trough of the market has been reached. The Bank of England has already taken strong measures to ease the tensions in economic and financial markets by cutting rates and commencing quantitative easing. However, it will take time for these to work through into the housing market before we can expect a sustained recovery in house prices.”

An official from the Royal Institute of Chartered Surveyors added: “While the housing market may now be out of intensive care, it remains some way off a return to normality. The rise in mortgage approvals from the depths touched in the latter part of 2007 still leaves the level of mortgage activity way down on anything experienced in previous recessions.”

He went on to state: “A key issue will be how rising unemployment balances the improvement in housing affordability in driving activity in the marketplace.”

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