While the extent of the correction that the UK property market remains unclear, it is undeniable that the situation facing homeowners is a stark contrast to the same period of 2006.

The upheaval caused by the news that Northern Rock took a loan from the Bank of England due to a lack of liquidity highlighted the lack of confidence that the public has in both banks, and the current economic climate. The scenes of savers queuing to retrieve their savings exacerbated the issue, and lead to shares in Northern Rock and several other banks falling.

Commenting on the situation, Michael Coogan, Director General of the Council of Mortgage Lenders (CML), said “Consumers need to understand that the problem for lenders generally at the moment is in raising funds, not in lending quality.  The Bank of England would not have provided the loan to Northern Rock if it had concerns about the quality of the lender’s own business.”

“Lenders are facing funding pressure at the moment, and what they need is a return to more normal market conditions as quickly as possible. We welcome the Bank’s intervention and confirmation that it is keeping a close eye on the situation.”

Currently, however, there is very little positive information to bolster consumer confidence. After several years of strong growth in the property market, it is likely that the mid term outlook will remain uncertain.

This month two of the largest mortgage lenders in the UK, Halifax and Abbey, raised the price of ‘tracker’ products for new customers.

According to Nationwide, the annual rate of house price growth has slowed considerably. Fionnuala Earley, Nationwide’s chief economist said “We still expect house price growth in 2007 to come in close to the middle of our forecast range of between 5% and 8%. The expected slowing results from three main factors, each of which have been around for some time. First, weaker affordability, as house prices continue to grow more quickly than earnings; second the effect of higher interest rates and inflation on consumers’ pockets; and third, lower house price expectations.”

An accessibility index, developed by the Royal Institution of Chartered Surveyors (RICS) found that the cost of becoming a home purchaser in Great Britain deteriorated by 8.4% in the year to 2007 Q2 and has worsened by around 350% since the most accessible point in 1996.

RICS senior economist David Stubbs said "House prices have risen by over 11% a year since 1996 whereas first time buyer incomes have only risen by 3.5% a year. This has forced buyers to borrow ever greater amounts and now higher interest rates are applying pressure to the household finances of recent buyers. However, affordability pressures may be nearing a peak. With house price growth expected to be below earnings growth in 2008, and with possible interest rate cuts in the second half of that year, the burden on first time buyers may lesson somewhat.”

The level of inflation measured by the CPI decreased in September, falling to its lowest lever in 17 months. This has boosted the belief by some analysts that the Bank of England is unlikely to increase interest rates to 6% in their next meeting.

The main concern both the UK property market and the economy as a whole is that the wider macro economic issues that are causing the current downturn are taking place in the US economy; for the next few months, investors should be aware that any further problems suffered by US investors may cause some troubling times in the UK.