Why will I find it harder to get a mortgage?

It is nothing personal. The credit crunch means that banks are reluctant to lend to each other. Banks rely on the liquid transfer of cash between each other to fund their loans to consumers. Now that these loans have dried up, it has made it impossible for them to finance the type of mortgage deals seen over the past few years. The emergency bailout of Bear Stearns has made the world’s banks even more reluctant to lend to each other, mainly because they are frightened of another collapse.

The US crisis is likely to dent confidence in the property market further, which could prompt more price falls. Lenders may cut back again on the size of loans they offer if this happens. Brokers say the problem is likely to get worse before it gets better.

What should I do?

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If you are a first-time buyer, don’t bother trying to get a mortgage unless you have a deposit for at least 25 per cent of the property value. If you don’t have one, get saving.

Anyone due to remortgage, even in six months’ time, should plan ahead. Savills Private Finance, the broker, says you can reserve a rate that is on the market now for up to six months. If rates have fallen by then, you can ditch that deal and switch to the best available at the time.

Why will this affect the property market?

If there are no mortgages available, buyers cannot buy houses. Sellers have either to withdraw the property from the market or accept a much lower price. Agreed sales are falling through because lenders are pulling out at the last minute. Worst affected is the first-time buyer end: one bedroom apartments. Now that first-time buyers cannot easily obtain deals worth more than 90 per cent of the property, even this type of accommodation is out of their reach. Prices at the top are also suffering as fears grow over City jobs and bonuses.

What should I do?

It is probably a good idea to avoid selling unless absolutely necessary. If you have to sell, market the property at about 10 per cent below its value to attract interest. This way, you may spark a bidding war.

First-time buyers should stay away for the time being, while other buyers should search for bargains at property auctions and negotiate hard.

Should I be worried about my other debts?

Unfortunately, yes. While the mortgage market is bearing the brunt, banks also have to fund lending on credit cards and personal loans, so anyone with lots of debt is likely to be hardest hit. The good news is that experts think that card companies have stopped restricting their criteria and if anything, are trying to acquire new business, which should make it possible to get another card with a competitive interest rate if you need one. However, personal loan rates are expected to continue to rise to dissuade further borrowing. This will increase the monthly outgoings of anyone who has personal debts and will reduce the chances of obtaining any more credit.

What should I do?

Hard times require tough action. The golden rule is to pay off your most expensive debts first. Credit-card holders should stop spending on their cards and aim to clear debts as soon as possible. For a bit of breathing space, switch to a 0 per cent interest deal if you can, but resist the temptation to add to your debt. Contact Citizens Advice at www.citizensadvice.org.uk, National Debtline at www.nationaldebtline.co.uk or Credit Action at www.creditaction.org.uk for free help.

Are there any safe havens left for my money?

Yes. Building societies are not as exposed as banks to the renewed credit crisis because they do not use as much wholesale funding to back mortgage deals. This means that they are less likely to “do a Rock”.

However, rates are not always that great. Ironically, Northern Rock has arguably become the best place to stash cash since the bank began offering market-leading accounts to attract new business. Since the nationalisation, these rates come with a full government backing.

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