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The Policy Exchange think tank hit the headlines over August with its prediction of an 8% Bank rate by 2012, necessary to control runaway inflation. If that proves correct, then borrowers on a £500,000 interest-only tracker mortgage would be facing a significant rise in monthly repayments of £3,125.

Most industry experts have poured cold water on the forecast, with the consensus that Bank rate is more likely to return to its long term ‘normal’ level of around 5% in the next few years, with little movement in the immediate future. However, that would still result in the monthly repayments on a £500,000 interest-only tracker mortgage rising by £1,875.

Around 4.5 million borrowers would face an immediate increase in their rates if Bank rate rises, so they do need to consider how they will cope when that happens.

Swap rates – which measure the cost to the banks of funding mortgages over two, three and five years – have fallen recently; five year swaps were at 2.06% at the close of business last week, down from 2.49% a year ago. And as the cost falls, an increasing number of borrowers are choosing the long term security of fixed-rate deals over cheaper variable rates.

About 50% of the new mortgages approved in August were fixed rates, the highest level so far this year, according to the Council of Mortgage Lenders.

Of course, with the help of specialist brokers like Largemortgageloans.com, clients can choose to hedge their bets with a combination of fixed and variable rates.

UK house prices fell for the second consecutive month in August, by 0.9%, the first time prices have dropped for two months in a row since February 2009, according to Nationwide Building Society.

Annual house price inflation, comparing the current average price of all properties with 12 months ago, is now at 3.9%, down from the rates of 6.6% in July and 8.7% in June.

Of course, as we have said before, there is no single property market in the UK, and price inflation varies markedly between sectors, regions and even roads. However, even in London, the annual rate of property price rises has fallen from 21% in April to 16% in August, according to estate agent Knight Frank.

The cost of luxury property in central London fell by 0.1% in August, a decline which followed the 0.5% fall in July. After strong growth in the market since March, such a flattening of prices was generally expected, as the supply of property for sale has been rising and the number of active buyers falling over the summer period.

As buyers return from their holidays, demand is likely to increase once more, especially since the London economy is outperforming the UK average, with vacancies in the City and Canary Wharf markets up significantly year on year, and Credit Suisse paying a one-off bonus to 400 top executives.

With the UK property market still favouring buyers over sellers, an increasing number of borrowers are using bridging finance to help buy new homes. Sellers have found it difficult over the summer, as a series of indices have shown house price deflation in certain sectors of the property market (see article above) and increased mentions of ‘double dip’ recession have caused nervousness amongst buyers.

However, many homeowners need to move because of changes in their work location or to accommodate a growing family. If they cannot find a buyer for their existing property, they do have the option to use a bridging loan – which provides them with the finance to buy a new property before they receive the sale proceeds on their existing home.

Mortgage brokers have seen requests for bridging finance on the increase, with private banks offering this type of property finance at broadly similar rates to a standard mortgage – about 3% for a variable rate – as long as the borrower can prove that they have enough income to support both the bridging loan and the mortgage on their existing property.

This can save clients significant sums, as interest rates from traditional bridging lenders are up to 1.5% per month and often have arrangement fees of 1% or 2.

The result has been a rise in the number of borrowers seeking pre-approved credit from lenders. (Some private banks will offer a pre-approved bridging facility for up to six months.) If a buyer has a pre-agreed mortgage, this puts him in a strong negotiating position. If this is combined with a pre-agreed ability to ‘bridge’ if necessary, then he can exchange contracts quickly and secure the purchase.

According to the Nationwide Building Society, price growth in the housing market finally ground to a halt in July as prices fell 0.5% over the month for the first time in five months. Annual property price growth also fell from 8.7% to 6.6%, largely due to a shortage of buyers.

Martin Gahbauer, Nationwide’s chief economist, said that restricted availability of mortgages and economic uncertainty continued to deter many people from moving house, with the exception of wealthy buyers.

However, according to figures from the Land Registry, property prices rose 0.1% between May and June. This is the eighth rise in a row, according to figures from the Land Registry house price index, with prices now returning to levels seen in the summer of 2006.

All regions in England and Wales experienced increases in their average property values over the last 12 months, with London seeing the highest annual price change with an increase of 12.2%.

Such conflicting reports might make you feel confused about the future direction of house prices. But, remember, they are average figures, based on a sample of UK property transactions and do not reflect the upper end of the UK housing market, where prices are continuing to rise due to the scarcity of high quality property.

There is no single ‘UK property market’ but different market segments which are affected by specific factors and behave in different ways. We are beginning to see a polarisation in the market between the upper end, where demand is strong, supply of property is restricted and prices are steadily rising, and the lower end, where confidence and lack of capital are clear constraints. It may be that a two-track market is starting to form and it will continue to do so as long as specialist brokers are able to arrange the funding needed to finance deals at the upper end of the market.

The cost of renting and purchasing up-market properties in the capital is being driven up by a surge in interest from wealthy Chinese tenants and the return of City bonuses.

Research by Curzon Investment Property, the specialist residential investment and asset management services provider, shows that average rents in some parts of west London have soared by 9.2% in the last year.

It believes that some of the increase can be explained by wealthy Chinese tenants taking advantage of the strong Yuan, which has gained since no longer being pegged to the US dollar from June.

Additionally, big City bonuses are encouraging London’s higher earners back to the prestige property sector.

However, Curzon warns that purchasing activity is still well below its 2007 peak, constrained by the lack of funding for buyers who need high loan to value mortgages.

But amongst those overseas investors who do have significant deposits – and who still benefit from around 30 percent discounts on prices because of the weakness of Sterling – interest in buying a London property is approaching 2007 levels.