UK Property: Falling Savings Deposits+Rising Mortgage Lending=?

Savings deposits fell by £73million in February, following a drop of £200million in January as returns deteriorate; with some accounts now paying 0% returns to savers. Some are saying that the fall in savings deposits, combined with the rise in mortgage lending 3 months running is a sign that recovery in the UK property market is being spurred by the low interest rates.

I am not one of them: while record low interest rates present a double whammy of attractiveness to people with substantial savings -- cheaper borrowing for better returns -- the rental market isn't currently looking all that healthy.

Savers -- known for their frugality and caution -- are unlikely to put their savings into property, only to find that their rental income falls, possibly as interest rates start to rise.

The negative press about over supply in the rental market removes the one attraction of moving bank savings into property investment: with prices expected to fall further in the short term a savings financed property purchase right now would be like burning 20% or more of your savings. Depending on how fast properties rise compared with inflation, savers could still lose out in this strategy, irrespective of whether the property bounces back to be worth more than they paid for it in the long run.

On top of that based on the likelihood of there being interest rate rises long before any real growth in UK property prices, savers are likely to make a bigger return in 2009/2010 by leaving their money where it is, or finding something more creative to invest in.

And that is before we mention the fact that falling savings deposits is bad news for the banks and is going to prolong tighter lending practices and therefore the property market and economic slump.

In my opinion it is therefore much more likely that falling savings deposits can be attributed to the recession lessening disposable income, and those who can afford to save seeing it as futile with such low returns and using the money to cheer themselves up instead.