Why is the outlook suddenly more gloomy?

The sudden demise of Bear Stearns has revealed that the credit crunch crisis is deeper and more damaging than was previously thought. The emergency takeover of this US bank has caused UK banks to grow even more nervous than before. For the past six months they have been withdrawing mortgage deals. But now they are becoming even less willing to lend. Estate agents report that creditworthy potential homebuyers are being excluded from those loans still on offer. The latest worries have ruled out an early end to this troubling scenario.

Are all borrowers affected?

Securing a home loan is now much harder and more costly for all buyers - even those who have had no problems in the past. The supply of credit has dried up most quickly for first-time buyers, with lenders now channelling their funds into remortgages. So if you have substantial equity in your home, you might have better luck securing a good deal.

After years of good deals on home loans, David Miles, an economist at Morgan Stanley, says that lenders are charging according to what it costs them to borrow - not the base rate. Do not rely on any savings being passed on to you if the Bank of England cuts rates.

What about buy-to-let investors?

Loans for amateur investors are in short supply but more experienced landlords who have built up strong portfolios can more easily get loans to snap up a property. Their enthusiasm is bolstered by rising rents - up 9 per cent last year, according to Hometrack - as more potential buyers wait. Michael Coogan, the director-general of the CML, predicts that buy-to-let could outperform the owner-occupier market. Fionnuala Earley, of Nationwide, counsels against expecting a sell-out in the sector - more bad news for buyers hoping for bargains.

What will be the effect of all this?

Experts say that the biggest casualty will be the number of sales as uncertain homeowners stay put. Richard Donnell, of Hometrack, expects only 1 million transactions this year - a rate that would have people moving once every 25 years, rather than the typical seven years.

But there are disturbing signs that some owners may be soon forced to move: Citizens Advice says this week that the number of inquiries from householders struggling with their loans is up 35 per cent this year.

Will property prices slump?

Signs that prices are taking a hit are increasing: Nationwide says that prices have dropped four months in a row, Hometrack says five. The agents Hamptons International and John D.Wood report prices down 10 per cent in London. And there may be more pain ahead. David Miles, of Morgan Stanley, says that futures traders expect a 14 per cent fall in house prices over the next two years - or 20 per cent in real terms, once inflation has been accounted for.

But is the prime sector powering on?

Not any more. Just months ago expensive homes were confounding the rest of the market, but the latest figures from Savills show that prices dropped 1.5 per cent in the first quarter of this year. The worst hit are homes that most appeal to those in the City, those priced from about £1million to £2 million, which fell 2.7 per cent.

So bargains must be emerging?

Some homes are selling at knock-down prices in auction rooms, particularly unpopular new-build flats. And some owners who need to sell are prepared to take offers. But Rightmove is again reporting a rise in asking prices. All this means is that homes are lingering unsold on the market.

Can we hope for a quick recovery?

Agents had been hoping that this year's early Easter would revive the property market - and there were some signs in recent Hometrack data of more interest from buyers. Hamptons International said that, after a difficult few months, applicant levels had improved. But observers who had been predicting a relatively quick resolution of the problems seem to be disappointed. David Salvi, of Hurford Salvi Carr, believes that it will be spring 2009 before the market recovers; Liam Bailey, the head of residential research at Knight Frank, believes we may be waiting until 2010 for the turnaround.

Are there any safe havens?

Agents are reporting a return to more traditional markets: houses without obvious flaws will hold their value best. Savills is selling The Priory, a five-bedroom, 18th-century country home, in Denham Village, Buckinghamshire, for £3.5 million (01494 731950). With access to good schools and in a conservation zone just half a mile from the M40 and two miles from the station and Tube, this kind of home has a good chance of holding its value.

Richard Donnell, of Hometrack, says that if he had a deposit of £200,000, he would buy a three-bed home in southeast London for about £350,000. By renovating it to create five bedsits, he could bring in £54,000 in rent - £30,000 more than the unconverted house.

Any other good news?

Developers are finding it tricky to get finance.This means that the number of new homes being built is falling - Hometrack says that the number is down 10per cent in 18 months. This will frustrate the Government's plans for 3 million new homes by 2020, but a shortage of supply should provide some support for prices.

And Cantor Spreadfair, which reported in December that spreadbetters were predicting UK house prices would slide to an average £169,000 by 2010, now says that their clients are making much more bullish bets, proof that not all signs in the property market are gloomy.

WHAT THE AGENTS SAY

It's like the shoot-out at the OK Corral as sellers struggle to understand that the days of bullish prices are behind them, and buyers remain determined to get a bargain

ROBERT GODFREY, BIDWELLS, NORTHAMPTON

It is no longer a case of one or two quarters of price falls with values bouncing back shortly after

LUCIAN COOK, DIRECTOR OF RESEARCH, SAVILLS

The jobs market in the City is the new driving force in the property market. We are six months into a downturn and into a spiral that will not be easy to get out of

DAVID SALVI, FOUNDER OF HURFORD SALVI CARR

The rental market will be affected by the events at Bear Stearns. Most American bankers come here for short-term contracts and rent. But there are buyers coming from the East. Every time you lose a couple of Americans there will be an Indian or a Russian to take their place

ED MEAD, DOUGLAS & GORDON, WEST LONDON

There are as many gainers as losers when house prices fall. The quick way that first-time buyers can be helped onto the market is if house prices fall.

DAVID MILES, ECONOMIST, MORGAN STANLEY

London will now underperform the UK this year. We are expecting a fall of 2 per cent across the UK and one of 3 per cent to 3.5 per cent in London

RICHARD SNOOK, ECONOMIST, CENTRE FOR ECONOMIC AND BUSINESS RESEARCH

Interviews by Judith Heywood, Lucy Alexander, Lorna Blackwood and Kasia Maciejowska

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