The problems affecting the UK mortgage industry are coming up for their first anniversary, yet the shadow of falling property prices is preventing mortgage rates falling to the levels they would otherwise assume.

We should be seeing cheaper mortgages because the Bank of England has dropped base interest rates to 5 per cent and if the US is any example, we should be seeing lower rates in the coming months. But the corresponding fall in mortgage rates is barely visible, in fact many of the larger mortgage providers are actually increasing their rates. Analysts report that mortgage costs are lower than they were 12 months ago, but a quick scan through the products offered by the likes of Halifax, Nationwide and Alliance and Leicester seems to illustrate otherwise.

The big issue mortgage providers face is the likely impact of house price movements in the UK over the next year. If prices fall by 15 per cent, as predicted by some observers, lenders are set to see portions of their existing borrowers move into the high risk area of having secured assets of a lower value than their outstanding debt. But is the as big a problem as it was in the US?

Many commentaters think not because, even with a 15 per cent drop, only buyers who purchased in the last 12 months and borrowed in excess of 90 per cent of their property's value become a risk. That makes up less than 2 per cent of borrowers according to observers

So when will we see cheaper mortgages? They are not that far away we expect. Once a level of confidence retruns to financial markets, and that's got to start happening soon, the benefit of lower base rates will filter through to consumer mortgages. Experts predict that UK base rates could fall a further point to 4 per cent this year, bringing mortgage rates down too and fending off the problem of unaffordable repayments causing negative equity situations leading to repossession cases. Cheaper mortgage are on the horizon, we just hope the casualty count remains low until they eventually arrive.

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