While it would seem strange that individuals would make loans to consumers with bad credit, poor credit loans are one of the most common types of catalyst for financial ruin. By taking out one or more poor credit loans, when you cannot repay them, it is a simple matter to run yourself into the ground and not be able to repay any of the money that has been borrowed, causing a default on the loan.

Reza Attar-Zadeh, Director of Savings and Investments at Abbey, commented: “General levels of caution about the health of the economy and job security means that it’s difficult to separate consumers from their cash.

“We’re increasingly more likely to put any money we can spare into a savings account and with Christmas fast approaching and prices rising faster than incomes, it’s wise for consumers to plan ahead and become more savvy with their spending habits.”

Peter Bolton King of the NAEA said: “A simplified pack could include a sellers’ questionnaire, an Energy Performance Certificate (EPC), also reviewed to be fit for purpose, and the Land Registry title and plan. In times of economic hardship, let’s stop this ridiculous repeating of information and shameful waste of consumers’ money!”

Ray Boulger, technical manager at broker John Charcol, states, “If some of the over-supply of housing stock in city centres like Leeds and Manchester was bought cheaply by the Government, it could be sold cheaply too,” he acknowledges. “But first-timers should still be wary of new-build. Developers like George Wimpey are also offering their own schemes where buyers pay for just 75 per cent of the property, giving back the 25 per cent to the developer when they sell. These schemes may provide better value, as new homes cost between 10 and 15 per cent less than this time last year.”

“Normally you would encourage borrowers to shop around at the end of their deal and avoid going on to the SVR. But that’s not so easy now,” said Louise Cuming, head of mortgages at moneysupermarket.com. “Lenders have changed their criteria so you can’t borrow at the same multiples as before, so borrowers need to consider SVRs even if they’re not effectively trapped into them.”

“I don’t think they have shut up shop,” replies Neil Johnson of the Building Societies Association (BSA). “But they are lending in a different way to the way they did previously. For some of them that is a conscious decision they may have taken; it is not necessarily a bad thing in the current market.”

“We are doing hundreds of mortgages each week, we are still actively lending,” says Rachel Howarth, head of marketing at the Coventry building society. “But things have got a lot quieter in the last few weeks. People are holding back because house prices are falling, especially first-time buyers.”

Head of Alliance Trust Research Centre Shona Dobbie stated, “Consumers are currently facing the worst financial reality ever in the 11 years of our study. All three of our indexed measurements* of consumer well-being have decreased over the past quarter. Households now have to spend more on their mortgage repayments and council tax bills, combined with the fact that their real earnings are failing to keep up with inflation, and so they are feeling poorer and having to cut back in some areas of spending. These bleak conditions are set to get worse for the rest of the year. The labour market has remained fairly strong up until now, but we predict that this will soften over the second half of 2008 as the number of people claiming unemployment benefit continues to rise.”

“The Nationwide data indicate that there is ongoing major downward pressure on house prices from extremely weak market activity, stretched buyer affordability and tight lending conditions,” said Howard Archer, of analysts Global Insight.

“Indeed, it seems odds-on that house prices will continue to head rapidly south given that the Bank of England reported extremely low mortgage approvals for house purchases in June, while latest survey evidence shows that house sales are depressed, buyer interest is weak, it is taking longer to sell a house, and sellers are achieving a falling percentage of their asking price.”

Steve Willey, head of credit cards at moneysupermarket.com, said: “The fact people could blow over £150 billion is alarming. This is surely a big wake-up call to all providers that they must take into account a person’s total potential debt when they apply for credit cards. It’s all well and good to give someone a £5,000 credit limit if they can afford it, but huge potential problems occur when that one person is given cards by many different providers each with a £5,000 limit.”

“Some providers are acting responsibly by refusing applications due to a person’s total credit limit on all their cards, but others are still assessing things as though that person doesn’t have another card.”

“Lending levels continue to be lower than last year and any recovery is still some way away, with little sign of the special liquidity scheme increasing the flow of funds to the industry or lowering the cost of funds as hoped,” said Michael Coogan, CML director-general.

Melanie Bien, director of mortgage broker Savills Private Finance, said: “We’ve had some pretty encouraging news in recent days. Certainly more lenders are cutting rates than raising them. But I’m not sure we are going to see lenders cut their rates right across the board.”

Louise Cuming, head of mortgages at price comparison site moneysupermarket.com, said: “It won’t be long before it too falls in line with its peers, after which time the first-time buyer could become somewhat of an endangered species. The majority of lenders will now only look at people with a deposit of at least 10 per cent, and even those types of deals are diminishing rapidly – in just over a month, the number of 90 per cent loan-to-value products has gone from 1,430 to 836. The liquidity crisis is squeezing across all products, not just the bigger LTV deals that are the traditional staple of first-time buyers.”

Melanie Bien from Savills Private Finance said: “Most lenders will let you switch from a repayment to an interest-only loan for a small charge, and the advantage is that it will significantly reduce your mortgage payments. The downside is that you are not paying off any of the capital. If you continue with an interest-only deal, you will have to pay back all the capital at the end of this.”

Tom Girling, Yorkshire Bank’s product manager for mortgages said: “In the current environment fixed rates on both mortgages and savings seem to be rising every week, with some borrowers finding it very difficult to afford their mortgage payments. These new products have been designed to help borrowers manage their monthly budgets and at the same time provide peace of mind from the security that their payments won’t change during the term they have chosen”.