A recent report noted that house prices received a boost, as the house price to earnings ratio, was at its lowest ratio, indicating that less earnings would be needed to purchase a house.

The house price to earnings ratio, which is a key affordability measure, is at its lowest level for six years.The house price to average earnings ratio - which is calculated by divide the average house price by the average earnings - has declined from a peak of 5.84 in July 2007 to an estimated 4.42 in February 2009; a fall of 24 per cent. The ratio is at its lowest level for six years.

Good news short lived
However, the Halifax house price index has revealed that prices fell by 2.3 per cent in February, just above the 2 per cent increase in prices in January. As a result, the price of the average house has fallen 17.7 per cent over the past 12 months, taking the average price to 160,327. This is now close to the level of August 2004.

Halifax highlighted prices, in the three months to February comparing them to the previous three months were prices 3.6 per cent lower. This is slightly below the quarterly rate of decline of 5-6 per centrecorded consistently between June 2008 and January 2009.

Martin Ellis, housing economist at Halifax, said: "While market activity remains at very low levels, there are some tentative signs that activity may be beginning to stabilise. Continuing pressures on incomes, rising unemployment and the negative impact of the dislocation of the financial markets on the availability of mortgage finance are, however, likely to mean that 2009 will be another difficult year for the housing market."

Banks reluctant to lend
The view point to borrowers will be mixed, but what will be those of the mortgage lenders and how will the choice to lend affect them.

One example can come from the nationalised bank, Northern Rock has recently been given an order by the Government to boost mortgage lending to borrowers. However in the light of the economic downturn, this may have negative consequences for them as borrowers may be unable to repay their mortgages and due to the prospect of negative equity.

A borrower enters into negative equity when the amount they owe on their mortgage is more than the financial value of their home. In itself this is not a problem; however it becomes a serious issue if a mortgage borrower has to sell their property because they need to move, or if they cannot keep up with their mortgage repayments and are thus forced to sell.

Many Northern Rock customers are presently in negative equity because they took out a 'Together mortgage' with the bank, which allowed them to be lent up to 125 per cent of the value of a home, creating even more debt to be paid back and an increasing problem if the house were to fall into negative equity.

Northern Rock, which revealed the figures in its annual results, also indicated repossessions were on the rise. Its stock of repossessed homes also rose to 3,620 at the end of 2008, up 63 per cent from the 2,215 cases that took place a year earlier.

Gary Hoffman, the chief executive at Northern Rock said: "Unfortunately, given the external economic backdrop, it is likely that repossessions will continue to be a feature of the market over the coming year."