By Lorna Bourke

LONDON (Citywire) - Research shows mortgages are not as difficult to obtain as the doom-mongers would have us believe and brokers remain a valued service. Much depends on repairing first-time buyers' confidence.

Rising unemployment and inflation at 4.4 percent does not look good for homeowners, lenders or intermediaries. The number of people claiming unemployment benefit rose last month at its fastest pace since the recession of the early 1990s, when unemployment peaked at 3.5 million.

Figures from the Office for National Statistics show the number of people claiming unemployment benefit increased by 20,100 in July, the sixth monthly rise in a row. So there are potentially up to 20,000 more people joining the arrears queue, which already stands at 155,600, according to the latest figures from the Council of Mortgage Lenders (CML.L: Quote, Profile, Research).

Although these numbers are almost irrelevant in terms of their effect on the numbers of homeowners needing to remortgage or move house, psychologically they are important to consumer confidence - probably the most important driver of the housing market. Stories of repossessions - even if they are only 0.16 percent and arrears 1.33 percent of all mortgages - will make people cautious about taking on new commitments.

Even homebuyers who are not anxious about losing their jobs face a reduction in disposable income as the Bank of England revealed that inflation has hit a 16-year high of 4.4 percent. Fuel and food costs have gone up by as much as 20 percent in some instances and this is putting a squeeze on families' finances, which are already under pressure from higher monthly mortgage repayments. Confidence is critical

So what will trigger the market into movement again? ‘Confidence is always a critical factor and depends on whether house prices are going up or down,' says Ray Boulger of mortgage broker John Charcol. ‘Prices need to stabilise to restore confidence.'

Interest rates are an important factor too, and the Bank of England's prediction that inflation could hit 5percent before the end of the year does not look good for any interest rate cuts. Boulger predicts rates will probably remain at 5percent until the end of this year. ‘But by the middle of next year they will be down to 4.5 percent and 4percent by the end of 2009. By then, prices will have stabilised too,' he says. So there are no expectations of a quick fix for the market.

However, there is some evidence that house prices may be stabilising now. If asking prices are more realistic, as the Royal Institution of Chartered Surveyor (Rics) reports, they are probably off 10percent and buyers are able to negotiate another 10 percent discount, so arguably prices are already down 20 percent.